In the month of March, the S&P 500 finished up 4%, and the Dow Jones Industrial Average up 1.87%. The S&P 500 is now up 7.6% for the year through the month-end.
While March undid much of the damage from February within the S&P 500, the Dow Jones Industrial Average remained a bit of a laggard with its recovery. This momentum has not been without continued volatility, with headlines regarding inflation and its trajectory. While the inflation numbers have continued to come in at or below expectations, the guessing and hand-wringing before the press releases have not been gentle within the market.
Meanwhile, while it may seem already like eons ago, during the month of March, we also had a banking crisis, which culminated with Silicon Valley Bank, Signature, and First Republic topping the headlines and within the crosshairs. While there might be feelings about the Federal Reserve coming to the rescue of “Silicon Valley” bankers, we believe the correct action was taken.
Many did not and may still not recognize that Silicon Valley Bank was a key banking partner for a huge swath of startups across the US economy, all of which would have been in danger of needing to shut down had the FDIC not stepped in to insure their deposits. Put another way, major parts of our economy across countless industries would have shut down immediately without the cash even to make payroll the following week, causing a downturn that would have been so large a risk to our overall economy, it would likely have reverberated for generations.
While confidence has been shaken, and there may be more volatility associated with confidence in the banking sector, we believe the steps taken by Federal Reserve to create more liquidity for banks have been adequate enough for this not to become something larger — but confidence, or the lack thereof, can become a bit of a self-fulfilling prophecy, so this is an area where we are still paying attention.
In March, we received an update on the jobs market, and with that update, we saw them all come in roughly in line or only slightly stronger than expected, and the market’s reaction has been more muted as such.
More directly, consumer and producer prices continued to decline, with the market reacting positively to the headlines. The Federal Reserve continued to raise interest rates another 25bps and spoke of further increases depending on the data, and now also, based on the reaction we see from the banking industry, and whether additional tightening in lending conditions will further slow the economy and further cool inflationary pressures.
Next week we will receive updated numbers regarding the key inflation indicator the Federal Reserve watches, the PCE index, and the latest update regarding GDP. If we continue to receive confirmation that inflationary pressures are subsiding, we anticipate the market’s reaction will likely be positive.
State Of The Markets & World
On a technical level, the broad US market would need to pull back by about 4.27% from yesterday’s close before it becomes technically weak on a 200-day moving average. As we’ve written about many times, this is a widely followed indicator. Elsewhere we see some pressure around areas like Small Companies and Large US Value. Still, broadly speaking, we think there remains enough positive momentum to maintain the cautious optimism we expressed at the beginning of the year.
This week, earnings season has begun, and so far, there has not been the overall weakness many were concerned would arrive. It’s still too early to tell, but we will continue to monitor this development.
Additionally, we’re now in the home stretch of the deadline for congressional approval on raising the debt ceiling, which we mentioned earlier this year would likely create volatility without a clear path forward to its approval. Unfortunately, this brinkmanship is now part of our new normal.
While it would be a historic first for the debt ceiling not to be approved and catastrophic for it not to be approved, there does seem to be more division than ever within our congress and more extreme views on both sides than ever, so we cannot say the chance is zero such an event would come to pass. We will continue to monitor this situation closely.
As always, as the facts change, so will our opinions. If you have any questions or concerns about your portfolio or world events, we’re here for you.