The first quarter of 2023 saw the markets rebound and inflation slow modestly. Yet, it also gave us a bit of heartburn during the ‘mini-banking crisis’ as we had brief flashbacks to 2008-2009. Amidst all this noise, Pointe Capital Management remains cautiously optimistic.
In stark contrast to 2022, both stocks and bonds performed well in Q1 2023 as shown in Tables 1 and 3, with the S&P 500 Index® rising 7.5% and the Bloomberg Aggregate Bond Index® rising 3.0%. Meanwhile, Table 2 shows the dramatic outperformance of technology, communication services and consumer discretionary stocks versus the other 8 sectors in the S&P 500. In simple terms, the laggards in 2022 became the winners thus far in 2023.
Looking ahead, while the global banking crisis adds an uncertain element to the outlook, we continue to see more positives than negatives for 2023. On the positive side of the ledger, inflation is moderating from a very high level, market pessimism remains high (a contrarian indicator), the Fed is signaling a pause/slowdown in interest rate increases and valuations appear selectively attractive. The risks include a Fed policy error, banking trepidation and elevated earnings forecasts. Finally, the ‘unknown unknown’ is the lagged effect of the fastest pace of interest rate hikes in 40 years (see Chart 4.)
In the long run, we adhere to the winning formula of a diversified portfolio, patience and layering into the markets over time. We appreciate your confidence in who we are and what we do on your behalf.
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