During the first quarter of 2023, the stock market proved to be quite resilient, despite rising inflation, uncertainty surrounding the Federal Reserve’s policies, interest rate hikes, and banking concerns.
In January 2023, inflationary data seemed to show a possible peak, giving hope that the Federal Reserve would scale back interest rate hikes. However, subsequent inflation data showed prices ramped up again.
Inflation and Banking Challenges Played a Heavy Role on the Economy
As investors responded to interest rate concerns, stocks and bond prices dipped. In addition to the impact of rising inflation, two major banks collapsed in March 2023. As a result, bank stocks dropped further. Along that vein, the first quarter saw the takeover of Credit Suisse Group. Overall, Credit Suisse Group neared failure. Thus, its rival, UBS Group, assumed control of the bank. Simultaneously, several banks in the United States provided funds to keep First Republic Bank afloat.
Although the banking sector faced its share of challenges, the long-anticipated economic recession has not come to fruition quite yet. Holistically, the labor market remains strong, despite rising inflation. Furthermore, the two primary inflation indicators, the Consumer Price Index and the Personal Consumption Expenditures Price Index, showed prices slowed on an annual basis.
Stock Market Ended First Quarter of 2023 on the Plus Side
Despite all of this apparent turmoil, coupled with the ongoing war in Ukraine, stocks regained their footing. Moreover, stocks ended the first quarter of 2023 on the plus side. The tech-heavy Nasdaq led the benchmark indexes. Additionally, the S&P 500, the Global Dow, the Russell 2000, and the Dow Jones closely followed the NASDAQ. Investors poured money back into Mega cap tech shares, driving them higher during the first quarter of 2023 after an underperforming 2022. Those gains helped drive the Nasdaq and the S&P 500 higher.
Even with investors taking gains from the Mega caps, other market sectors reaped the benefits. Energy stocks, which excelled in 2022, fell in the first quarter of 2023. Also, crude oil prices dropped as well. Conversely, gas prices rose minimally higher, with regular retail prices averaging $3.421 per gallon on March 27, $0.14 over prices on January 4th. The dollar dipped lower, while gold prices rose higher.
Stock Market Enjoys Best January Performance Since 2019
The quarter kicked off with stocks enjoying their best January performance since 2019, as inflation data suggested that inflation may have peaked, raising hopes that the Federal Reserve would scale back interest-rate hikes and temper fears of an economic recession. Nevertheless, Federal Reserve Chair Jerome Powell cautioned that the battle against rising inflation was far from over and additional rate hikes were upcoming. In fact, the Federal Reserve hiked interest rates 25.0 basis points on the last day of the month. Growth stocks performed best, with Mega caps making solid gains.
Consumer discretionary, communication, and tech sectors performed well, while defensive sectors, such as utilities, health care, and consumer staples, dipped lower. Bond prices advanced, pulling yields lower. While 260,000 new jobs were added in December, the growth was the slowest in two years. Average hourly earnings rose to the lowest annual level (4.6%) since September 2021. However, manufacturing declined at the fastest rate since May 2020, while services retracted for the third month running, according to the S&P Global Manufacturing PMI™. Nevertheless, each of the benchmark indexes listed here added value, led by the Nasdaq (10.7%), followed by the Russell 2000 (9.7%), the Global Dow (7.8%), the S&P 500 (6.2%), and the Dow (2.8%). Ten-year Treasury yields fell 35.0 basis points, crude oil prices dipped 1.7%, the dollar slid 1.4%, but gold prices advanced 6.3%.
February 2023 Shows Backslide for Stock Market
Stocks gave up some of their January gains in February, with each of the benchmark indexes losing value. The Dow (-4.2%) fell the furthest, followed by the Global Dow (-2.7%), the S&P 500 (-2.6%), the Russell 2000 (1.8%), and the Nasdaq (-1.1%). Bond prices declined, driving yields higher, with 10-year Treasury yields advancing 39 basis points. Crude oil prices decreased 2.8% to $76.86 per barrel.
The dollar rose 2.8% against a basket of currencies. Gold prices lost most of their January gains, falling 5.7% in February. Consumer prices advanced, with core prices (excluding food and energy prices) climbing 0.6%, the biggest advance since August. Over 500,000 new jobs were added, nearly three times the consensus estimates, and the largest increase in six months. The unemployment rate slid to 3.4%, its lowest level since 1969. Consumer spending rose 1.8%, the most in nearly two years.
March 2023 Outperformed Despite Global Banking Crisis
March was a very choppy month for market returns. Despite an apparent banking crisis, investors stayed the course for the most part, driving stocks mostly higher. The Nasdaq and the S&P 500 led the gainers of the benchmark indexes listed here. Several sectors outperformed, including information technology, communication services, and utilities, while financials fell notably on the heels of the aforementioned bank failures.
Manufacturing retracted, while services advanced, according to purchasing managers surveyed. Labor remained strong, with 311,000 new jobs added. Hourly earnings rose by $0.08 for the month and 4.6% since February 2022. The Consumer Price Index rose 0.4% after falling 0.5% the previous month. The PCE price index increased 0.3% and 5.0% over the past 12 months. The economy advanced at an annualized rate of 2.6% in the fourth quarter, short of the 3.2% increase in the third quarter. Crude oil prices and the dollar declined, while gold prices climbed higher.
Information accredited to Broadridge.
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