• Economic news for the week included the Federal Reserve raising rates another quarter-percent, durable goods orders falling back, mixed to slightly better housing data, and little change in jobless claims.

• Global stocks saw positive returns last week, as some banking concerns abated, along with hopes for central banks easing hawkish policies. Bonds fared positively as well. Commodities rose in price across the board with help from a weaker dollar.

U.S. stocks calmed from the prior week, with some abating stress from the banking woes and lower interest rates helped sentiment. By sector, leaders included communications, materials, and energy, although defensive staples and health care were right behind. Utilities and real estate were the two sectors that lost ground, with the latter tied to concerns over expected tighter bank financing for commercial properties.

Communication has been used by Fed and Treasury officials increasingly over the years, with mixed success in calming nerves or shaping expectations (the latter is where it’s formally described as ‘forward guidance’). Wednesday’s FOMC first saw stocks rebound higher after the FOMC decision to raise rates, even while Chair Powell gave the impression that rate cuts were not in the cards this year. This rebound didn’t last long, though, as U.S. Treasury Secretary Yellen told the Senate around the same time that while the banking situation is stabilizing, blanket deposit insurance coverage was not being discussed at this time. The latter comments were blunt, yet realistic, but not taken as well by markets, causing a swift -2% downward reversal. (The insurance issue is up to Congress to decide, as it gets politically more complicated if intended to be on a longer-term industry-wide basis.) Banking stresses create a variety of messy issues, some of which are criticized as political. Another is Congressional pushback against bailing out U.S. banks taking on too many risks.

A risk on the side of tighter government regulation of banks, such as in the nationalization of deposit insurance, is that it could turn banks from profit-seeking businesses into more like regulated utilities (a long-standing fear from the industry, especially following crises). Markets, of course, would prefer little regulatory oversight, but also full backstops should things go wrong—a recipe for expensive moral hazard. Banks have been borrowing from the new Bank Term Funding Program at a rate of over $160 bil./week over the last few weeks—a sizeable amount—but also demonstrating that the targeted tool has been effective.

Foreign stocks outperformed U.S. last week in all segments, with help from a weaker U.S. dollar, as well as expanding PMI composite results in Europe. The financial sector has continued to experience volatility after the banking events of the prior weekend in Switzerland. In other markets, UK raised rates by 0.25% as inflation fears eased a bit, while China lowered rates by -0.25%, to likely project a stronger pro-growth signal. Emerging markets were mixed on the week, with gains in Asia offset by a decline in Brazil.

The Swiss National Bank facilitated a takeover of Credit Suisse by UBS, which helped alleviate further concerns of a global banking contagion for now. While this appeared to be done relatively quickly and cleanly, legal questions remain about certain subordinated Credit Suisse bond tranches (known as AT1) being wiped out, which was the purpose of the AT1 tranche. However, some stockholders were eased into UBS shares. Ironically, the deal strongly benefitted some senior CS bondholders, which were eased into higher-rated UBS backing. Ironically, the SNB raised rates by 0.50% just days after the merger to combat continued inflation pressures.

Bonds gained last week, as interest rates were flat to lower across the middle of the yield curve, but rose on the short and long ends. Investment-grade corporates fared best, while foreign bonds also gained along with the dollar.

Commodities gained across the board last week, notably in energy and industrial metals, helped by a weaker dollar as well. Crude oil rose over 3% last week to $69/barrel, in a choppy week along with mixed expectations for a recession this year and concerns over oversupply, as the U.S. government noted the Strategic Petroleum Reserve may take a few years to refill.

Period ending 3/24/2023	1 Week %	YTD %
DJIA	1.18	-2.21
S&P 500	1.41	3.86
NASDAQ	1.68	13.22
Russell 2000	0.53	-1.18
MSCI-EAFE	1.59	4.28
MSCI-EM	2.23	1.97
Bloomberg U.S. Aggregate	0.52	3.44

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2022	4.42	4.41	3.99	3.88	3.97
3/17/2023	4.52	3.81	3.44	3.39	3.60
3/24/2023	4.74	3.76	3.41	3.38	3.64

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.