Markets
Equity and fixed income markets followed up the first quarter of the year with positive total returns led by international companies (ex-US) which are up sharply on the year. Bonds were generally flat on the month.
Value companies mostly outperformed relative to growth companies, while small companies lagged larger companies.
According to data from FactSet, more than 53% of the S&P 500 has reported earnings and so far, roughly 79% companies have beat earnings estimates which is encouraging for investors and is welcome news to the markets.
The yield curve inversion continues, rewarding savers and short-term bond investors while providing anemic yields – and considerable interest rate risk – for long term bond holders.
The overall level of the yield curve has generally increased over the past month except for the 1-month treasury bill rate which declined by 35 basis points, from 4.7% to 4.35%.
Economy
The economy slowed in the first quarter of 2023, but still managed to grow by 1.1%. This tells us that the consumer – roughly 70% of the economy – continues to spend which is positive for earnings and in turn, the stock market. It also suggests that the Fed may continue to hike rates or at least defer pausing their rate hikes.
Inflation came in at 5% for all items, down from the 9.1% high reported in June.
All eyes will be on the Fed as they meet the first week of May. The markets expect the Fed to raise rates another 25 bps, up to 5.25%. Perhaps just as important as what the Fed does is what the Fed says in their post-meeting press conference.
Politics
The debt ceiling tug of war continues to rage on. History tells us that our government will increase the debt ceiling yet again as they’ve done so more than 70 times going back to the 1960’s, and under both Republican and Democrat administrations, I might add.
As we march into May, there are sure to be negative headlines and numerous reasons to not invest, just as there were in September of 2022 before the markets delivered two positive quarters of returns. Investors may be wise to focus on what they can control and tune out what they can’t.
Disclosures:
Views expressed are not necessarily those of Raymond James and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Diversification and strategic asset allocation do not ensure a profit or protect against a loss. International investment involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Raymond James is not affiliated with any of the organizations or persons mentioned above. Raymond James does not provide tax or legal advice.
Sources:
Raymond James
Wall Street Journal
https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_042823.pdf
https://www.nytimes.com/2023/04/27/business/economy/gdp-q1-economy.html
https://www.bls.gov/news.release/cpi.nr0.htm
https://www.bls.gov/opub/ted/2022/consumer-prices-up-9-1-percent-over-the-year-ended-june-2022-largest-increase-in-40-years.htm#:~:text=SUBSCRIBE-,Consumer%20prices%20up%209.1%20percent%20over%20the%20year%20ended%20June,largest%20increase%20in%2040%20years&text=Over%20the%2012%20months%20ended,Urban%20Consumers%20increased%209.1%20percent.
https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit#:~:text=Since%201960%2C%20Congress%20has%20acted,29%20times%20under%20Democratic%20presidents.