Markets March Higher

Stocks posted a positive March with the exception of the small-cap Russell 2000 index. The NASDAQ surged 6.8%, the S&P 500 propelled 3.7% higher, and the Dow Jones Industrial Average notched up 2.1%. Equities also finished Q1 in the black across the board, with the NASDAQ’s 17.1% quarterly advance leading the way. The NASDAQ has outperformed other major US indices in all three months of 2023, a sign of renewed favor for growth stocks. The Russell 2000 fell 4.8% for its second consecutive monthly decline.

Is the shift of sentiment back to Growth sustainable? Answer: a resounding maybe, at least for now.

After several years of growth-oriented stocks outperforming value, we saw an extreme reversal in 2022 with value outperforming growth by over 20%.

In the first quarter of the year, growth resumed relative outperformance by more than 13%.

The shift is not limited to equity style and can be seen in sector rotation as well. Last year’s laggard has become this year’s leader and vice versa:

The NASDAQ’s advance this year was in large part thanks to the Technology and Communication Services sectors. Technology jumped 10.9% higher in March, while Communication Services rose 8.7%. Stocks from these two sectors comprised all ten of the S&P 500’s top stocks in March. The biggest laggard in March was Financials, which plummeted 9.6% as a result of the fallout surrounding Silicon Valley Bank and First Republic Bank (FRC). The S&P 500’s ten worst performers in March were all stocks from the Financial sector as well. In addition, last year’s leader—the energy sector—was up over 64% in 2022 but down 4.34% in the first quarter thanks to oil being down over 41% from the high points in March of 2022, with most of the decline happening in August.

What led to these changes? At the heart of the matter, inflation can help explain this.

Last year, pent-up demand from consumers during COVID-19 combined with stimulus from the government and supply chain issues led to:

Higher oil prices
Increased consumer spending
Tight labor market
Elevated inflation
Aggressive monetary policy tightening from the Federal Reserve
Declines in the stock market, especially in the tech-heavy NASDAQ
Declines in bond values due to higher interest rates

This year, we have begun to see some stabilization, if not a reversal, in these areas:

As previously mentioned, oil down over 41% from the high points in March of 2022.
US Personal Spending for February inched 0.15% higher month-over-month following a surge of 2% in January, which was its highest monthly increase in nearly two years.
Labor markets continue to show limited signs of softening—initial claims for the latest week came in above economists’ expectations as well as the prior weeks’ report, while continuing claims came in below expectations.
The Federal Reserve has slowed the pace of interest rate hikes and is expected to stop raising rates in the coming month or two.
Bonds remain volatile, but interest rates have come down from their recent highs.

Key Takeaways:

Time in the market (not market timing) and diversification are paramount.

This March marked three years since the onset of the COVID-19 pandemic.

At the time, it seemed like the world was ending. The S&P 500 launched into near freefall, plummeting over 24% In a span of three short weeks.

But, did you know the S&P 500 also logged five single days of 6% or better in that same span, which are also the index’s five best days since 2020?

Missing them would’ve proved to be quite costly in retrospect.

Diversification – this slide illustrates how important it is to have a diversified portfolio. There is no one asset class or sector or style that is the top performer every calendar year:

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk.

The economic forecasts set forth in this material may not develop as predicted, and there can be no guarantee that strategies promoted will be successful.

Monthly Market Recap – March 2023

Markets March Higher

Key Takeaways: