March Market Commentary

Market Commentary

US stocks bounced back in March and the first quarter, despite troubles in the banking sector, as the market anticipated the end of the rate tightening cycle may be near. As a result of runs on deposits, Silicon Valley Bank and Signature Bank collapsed in the country’s second and third largest bank failures ever. In response to the two bank’s swift collapse, US regulators rushed to implement emergency measures to stem possible spillovers. Deteriorating confidence in the banking system prompted depositors to move cash from smaller regional banks to larger institutions putting downward pressure on regional banks stocks. Analysts lowered their EPS estimates more than normal during the first quarter based on concerns about bank liquidity and a possible broader economic recession. Economic news was mixed over the month. U.S. employers added 311,000 jobs in February, above the 225,000 estimate. The unemployment rate increased to 3.6%, above expectations. Multiple inflation data points were lower in February. The producer-price index deceased in February by 0.1%, below the estimate for a 0.3% increase. On a 12-month basis, the index increased 4.6%, well below the downwardly revised 5.7% level from the previous month. The consumer price index increased 0.4% in February, putting the annual inflation rate at 6%, both readings were exactly in line with estimates. Core CPI, which excludes food and energy, increased by 5.5% annually in February slightly below the 5.6% increase in January. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 5% annually in February, down from a 5.3% increase in January. US retail sales fell 0.4% in February, more than the 0.3% decline estimated. U.S. existing-home sales jumped 14.5% in February, snapping a 12-month slide and representing the largest monthly percentage increase since July 2020.

Foreign stocks also rebounded in March as actions taken by central banks appear to be cooling inflation in some areas. The Eurozone headline inflation rate continued to fall in February, increasing 8.5% annually, down from 8.6% in January. The European Central Bank (ECB) raised its benchmark interest rate by 0.50% to 3%, despite troubles in the banking sector. The ECB pledged support for the banking sector if needed. UBS took over Credit Suisse, a move prompted by regulators eager to stem a dangerous decline in confidence in the global baking system. The U.K.’s annual inflation rate increased to 10.4% annually in February, up from 10.1% in January. The Bank of England raised it key rate by 0.25% to 4.25% in March. The Chinese government announced a conservative growth target rate of 5% for 2023, recognizing that growth continues to face headwinds. Oil prices declined in March, ending the month at $75.76, down from $77.05 per barrel in February and down from $80.26 to start the year. Emerging markets outpaced developed markets in March, while developed markets outpaced emerging markets over the quarter and the last twelve months.

Interest rates fell in March as the stress in the banking system drove investors to expect the Fed to pause their rate hikes. The yield on the 10-year Treasury sharply decreased in March ending at 3.47%, down from 3.91% at the start of the month and 3.83% at the beginning of the year. The Federal Reserve increased the federal funds rate by 0.25% bringing the rate up to a range of 4.75% to 5.0%. If tighter lending conditions from the issues in the banking system are sustained, Fed Chair Powell acknowledged that could easily have a significant macroeconomic impact which would be factored into the Fed’s policy decisions. The rate for a 30-year fixed-rate mortgage fell to 6.3% at the end of March down from 6.5% to end February. US Government bonds were the top performer for March and the year to date, while municipal bonds were the top performer for the last twelve months. Longer-term bonds outpaced shorter-term bonds for March and the year to date, shorter-term bonds outpaced longer-term bonds over the last twelve months.