Marching To The Beat Of Its Own Drum

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The beginning of the month was dark and stormy, but the end was so serene. March truly did come in like a lion and go out like a lamb. Despite banking crises in the US and EU, US layoffs accelerating, and the FOMC raising interest rates, the major equity indices delivered impressive performance during the month. The NASDAQ 100 was up over 8% – its biggest monthly gain since 2010 and highest close since last August. From a technical standpoint, the NASDAQ is over 20% off its low and has thus begun a new bull market. What a turnaround from just a few quarters ago! It was not just the tech-heavy NASDAQ that surged. Other common benchmarks were also strong, discounting or outright ignoring less sanguine economic data. All told, the S&P500 ended 3.67% higher. Indeed, the luck of the Irish smiled upon equity markets this month.

The sudden and shocking collapse of Silicon Valley Bank (SVB) dominated financial headlines for most of the month, and rightly so. The mostly unexpected crisis came to head with such speed and intensity that markets barely had time to register what was happening before the bank found itself in FDIC receivership. A minor (and brief) panic in global markets ensued. The reasons and explanations for the collapse are varied and widespread, and there is certainly more than enough blame to be laid at the feet of many, but the bottom line is that the crisis was contained within a relatively short window of just two weeks.

While the fears of domino effects have been put to rest, the crisis did spread throughout the banking industry and sent the regional bank index down nearly 30% on the month. When the dust settled, SVB was no more, First Republic and a handful of other regional banks were desperately clinging to life, and Credit Suisse was gobbled up by its rival UBS in a fire sale.

As if the banking crisis was not enough, global markets also had to contend with inflation and interest rates. The Consumer Price Index printed a 6% year-over-year gain for February, once again declining from the peak levels seen last summer, but still far ahead of the Federal Reserve’s long-term target of 2%. Regarding interest rates, we saw Chair Powell once again hike the Federal Funds Rate 0.25% on the 22nd. This quarter point hike – executed in the midst of a banking crisis – reaffirmed the Fed’s commitment to restraining inflation, and while it was smaller in size than the mega-hikes from last year, it is clear that the central bank is willing to put its money where its mouth is – at least for now. Of course, traders and investors are optimistically hoping for a cessation of the rate hike campaign in May, with futures markets pricing in a 51% chance of a pause next meeting.

Heading into Q2, the atmosphere has improved remarkably in just two short weeks, but we remain cautious and curious. On one hand, there is much sentiment that the economy is on the verge of tipping into a recession. The housing market is under pressure and inflation – while obviously on its way down – is still much too high. An inverted yield curve, which historically has been a strong indicator of pending recession, still points to more difficult times ahead. On the other hand, the labor market remains strong and resilient. And by all indications, we are closer to the end of Fed tightening than we are the beginning. Perhaps the beleaguered central bank can orchestrate a soft landing after all. In any case, we will continue to monitor economic and market-related developments as they occur.


Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged, and investors cannot invest directly into an index.