Marketbites: Stocks Close Out Strong Quarter Despite Multiple Headwinds
MARKET PERFORMANCE:
Portfolio Manager Commentary:
The S&P 500 closed out Q1 of 2023 up over 7%. The Nasdaq Composite Index closed the quarter up 17%, which would be its largest quarterly gain since 2020. Quincy Krosby, chief global strategist at LPL Financial, believes that "the market seems intent on closing the book on the banking problems that caused the market to expect the end of the Fed's rate hike campaign."
Banking Sector:
Bank stocks have staged a partial recovery recently, but many remain below where they were before the recent crisis. The KBW Nasdaq bank index is up nearly 4% this week but down 25% in March. Bank of America Corp., Wells Fargo & Co., and PNC Financial Services Group Inc. are also on pace for their worst monthly performance since March 2020. The troubled lender, First Republic Bank, is set to close out its largest quarterly drop on record, while Charles Schwab Corp. is on track for its worst three months since 2008.
Inflation & Interest Rates:
The personal consumption-expenditures price index climbed 5% in February from a year earlier, down from 5.3% in January. This lifted hopes that the central bank could limit its campaign to curb inflation sooner than originally expected. The 10-year yield fell on Friday to 3.491%, while the 2-year yield, which more closely reflects investor expectations for short-term rates, slid to 4.060%. Both recorded their largest quarterly declines since March 2020.
Trump Indictment:
Former President Donald Trump was indicted for his alleged involvement in hush money payments to a porn star on the eve of the 2016 election, which marks the first time in American history that a former president has faced criminal charges. However, the stock market seemed unfazed by this news, as shares of companies with ties to Trump, such as Digital World Acquisition Corp. and Phunware Inc., rose by 7.6% and 10%, respectively.
Chart of the Day:
Inflation has been moderating but remains far above the Federal Reserve's 2% target. Despite the remaining gap in inflation, Federal Reserve Chair Jerome Powell hinted last week that the central bank could potentially pause its interest rate hikes earlier than initially anticipated in response to any potential decrease in credit growth resulting from recent stress in the banking system.
Source: WSJ
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