Investment Update April 4, 2023

Last Week on Wall Street

Economic data for the week included a slight revision lower in U.S. GDP growth for Q4, a continued deceleration in home prices, and mixed results for consumer sentiment.

Global equities fared positively to end the quarter, as fears of further banking contagion faded further. Government bonds declined as interest rates rose, while corporates and emerging markets rallied. Commodities gained along with stronger sentiment.

U.S. stocks gained to end the quarter, despite little meaningful economic news. Every sector experienced a positive week, with more cyclical energy, consumer discretionary, and materials all up over 5%. Real estate also gained about 5%, despite interest rates rising. Generally, waning fears of a broader banking crisis have appeared to fuel a relief rally of sorts. Mid-week, the Biden administration and U.S. Treasury proposed a new set of regulations for mid-sized banks with $100-250 bil. in assets, including stronger capital and liquidity requirements, annual stress tests, and bolstered supervision, including specific tests to determine a bank’s ability to withstand higher interest rates. For Q1, ‘growth’ stocks were the surprise winners, buoyed by lower valuations after sharp declines in 2022, as well as perceived stronger performance in a slower growth environment, compared to more cyclical ‘value’ names.

Foreign stocks fared positively as well, along with fading fears of a bank crisis, in addition to European inflation slowing further than expected. Emerging markets gained to a lesser degree, largely led by Brazil and Mexico, along with stronger commodity prices. While China fell in the middle of the pack, the new Premier reinforced the nation’s commitment to continue reopening progress and pro-business reforms, and perhaps an easing on regulation, all of which could positively add to global GDP growth.

Bonds were mixed on the week, with treasuries down as interest rates ticked higher across the yield curve. High yield and floating rate bank loans both gained sharply, along with equities. Foreign bonds were mixed, despite the tailwind of a weaker dollar, with emerging market debt gaining along with broader risk-taking. .

Commodities fared positively across the board, led by energy. Crude oil rose over 9% last week to just under $76/barrel, due to a decline in expected supply numbers—the Iraq government halted exports from Kurdistan due to a disagreement with Turkey. (Prices rose again by 6% in early trading this morning, as OPEC+ members decided on production cuts of 1.15 mil. barrels/day to stabilize prices.)

Fact of the Week

According to a Ramsey Solutions survey, 63% of those who rent their primary residence reported struggling to pay their rent at some point in the last 3 months. That is up 16 percentage points from the reading of 47% seen in Q1 of 2021.