March 2023 in Review

by Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I just wanted to take a few minutes to give you an update on the markets for the month of March.

March certainly hasn’t been a smooth ride for most investors; however, stocks did mount a comeback in the latter part of March after the month began with the failure of two regional banks and a forced takeover of Credit Suisse. Investors were able to regain confidence in the banking sector as the government set up a special lending facility to help some banks.

Amid the regional banking volatility, investors leaned into technology stocks relative to financials, as many technology companies have already taken steps to optimize costs and defend their margins. For the month, S&P 500 closed 3.50% higher, while the Nasdaq added about 6.7% and the Dow Jones jumped 1.89%. For the quarter, the S&P 500 advanced 7%, and the Nasdaq rallied 16.77% and the Dow gained about 0.38%. International Developed markets have also experienced a strong start to the year, returning 2.5% for the month and returning 8.5% for the quarter, bolstered by cheaper relative valuations and robust earnings.

At the latest Federal Reserve meeting in March, the Fed did decide to move forward with increasing interest rates by a quarter point to 4.75% to 5%, which has pushed borrowing costs to new highs since 2007, as inflation remains elevated. The Fed did note that the recent turmoil in the banking industry is likely to have a similar effect as a rate increase, which may slow the economy. Investors rushed into bonds as a flight to safety and on the prospects of a dovish shift by the Fed in response to the banking volatility. Over the last several weeks, the 2-year Treasury has ranged from slightly over 5% to as low as 3.80% and is currently yielding around 4% today. The U.S. Aggregate Bond index finished the quarter up about 3%.

The latest consumer inflation number in March came in line as expected at 6% year-over-year, and economists are expecting inflation to continue to decline over the next several months. By the 3rd quarter, they’re predicting CPI year-over-year inflation may be down to 3.5%.

Companies will begin reporting their 1st quarter earnings in April and investors are expecting their profits to be down about 6.6% from a year ago as earnings continue to be challenged by slower growth. However, analysts are expecting profits to return to growth in the 3rd and 4th quarters of 2023. Stock valuations on a forward 12-month outlook remain fairly valued around 17.80x, which is slightly above the 25-year average.

As we enter the 2nd quarter of 2023, we expect market volatility to remain elevated as financial distress from regional bank volatility has created new headwinds for the U.S. economy and increased the risk of a recession. Our team will be closely monitoring all economic news as the market continues to recalibrate for lower growth and the expectations that the Federal Reserve is likely close to a peak in their Fed Funds rate, assuming inflation continues to come down.

Be sure to check out our 2nd quarter newsletter for more insights, and as always, if you have any questions or want to speak to someone, please do not hesitate to give us a call.