Economic Update 4-3-2023 

• Economic data for the week included a slight revision lower in U.S. GDP growth for Q4, a continued deceleration in home prices, and mixed results for consumer sentiment.

• Global equities fared positively to end the quarter, as fears of further banking contagion faded further. Government bonds declined as interest rates rose, while corporates and emerging markets rallied. Commodities gained along with stronger sentiment.

U.S. stocks gained to end the quarter, despite little meaningful economic news. Every sector experienced a positive week, with more cyclical energy, consumer discretionary, and materials all up over 5%. Real estate also gained about 5%, despite interest rates rising. Generally, waning fears of a broader banking crisis have appeared to fuel a relief rally of sorts. Mid-week, the Biden administration and U.S. Treasury proposed a new set of regulations for mid-sized banks with $100-250 bil. in assets, including stronger capital and liquidity requirements, annual stress tests, and bolstered supervision, including specific tests to determine a bank’s ability to withstand higher interest rates. These would close the gap somewhat with what larger banks are required to undergo, by reversing the loosening in regulations several years ago.

For Q1, ‘growth’ stocks were the surprise winners, buoyed by lower valuations after sharp declines in 2022, as well as perceived stronger performance in a slower growth environment, compared to more cyclical ‘value’ names. This was behind the strong upward trend in the tech-heavy Nasdaq since late January, in fact, pushing these up 20% back into bull market territory. There is a growing ‘flight to quality’ component seeming affecting some of these stocks in technology stocks as well, with strong free cash flow growth preferred by investors this year over more uncertain banking names. Speaking of which, early in the week, the purchase of failed Silicon Valley Bank’s assets by First Citizens BancShares appeared to help the latter’s stock price, but also market sentiment.

Foreign stocks fared positively as well, along with fading fears of a bank crisis, in addition to European inflation slowing further than expected. Emerging markets gained to a lesser degree, largely led by Brazil and Mexico, along with stronger commodity prices. While China fell in the middle of the pack, the new Premier reinforced the nation’s commitment to continue reopening progress and pro-business reforms, and perhaps an easing on regulation, all of which could positively add to global GDP growth. The evolving regulatory environment was shown by the split of Alibaba into six different units, segmented by e-commerce, cloud, and media, after years of stronger government crackdowns on internet firms.

Bonds were mixed on the week, with treasuries down as interest rates ticked higher across the yield curve. High yield and floating rate bank loans both gained sharply, along with equities. Foreign bonds were mixed, despite the tailwind of a weaker dollar, with emerging market debt gaining along with broader risk-taking. Fixed income sentiment continues to waver along with changing expectations about the Fed’s potential ending point.

Commodities fared positively across the board, led by energy. Crude oil rose over 9% last week to just under $76/barrel, due to a decline in expected supply numbers—the Iraq government halted exports from Kurdistan due to a disagreement with Turkey. (Prices rose again by 6% in early trading this morning, as OPEC+ members decided on production cuts of 1.15 mil. barrels/day to stabilize prices.) Wheat prices have seen rising volatility with threats of a halt of Russian exports (potentially in response to a drop in prices prior).

Period ending 3/31/2023	1 Week %	YTD %
DJIA	3.22	0.93
S&P 500	3.50	7.50
NASDAQ	3.38	17.05
Russell 2000	3.96	2.74
MSCI-EAFE	4.02	8.47
MSCI-EM	1.95	3.96
Bloomberg U.S. Aggregate	-0.46	2.96

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
3/24/2023	4.74	3.76	3.41	3.38	3.64
3/31/2023	4.85	4.06	3.60	3.48	3.67

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.