Monthly Market Update – March 2023

By Simmons Investment Advisors on April 1, 2023

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US Equities

Despite the turmoil and volatility in the financial sector, US stocks finished nicely higher last month.  March’s headlines focused on two main items:

The Federal Reserve:

1. Prior to the below events in the banking sector, Fed Chairman Powell made hawkish comment before Congress, saying that interest rates were probably going to go “higher than previously anticipated” considering stronger economic data.  He said that he expects to raise interest rates multiple times in the coming months and would be prepared to reaccelerate the pace of tightening if needed.  This sparked equity weakness, ahead of the monthly jobs report which beat expectations and suggested further strength in the US labor market.
2. On the 22^nd, they raised the Federal Funds rate by 0.25%, to the highest level since 2007, and indicated that they may be closer to being done hiking rates than previously expected (vs Powell’s comments 2 weeks prior).

Banking Sector:

1. Silicon Valley Bank (SVB) and Signature Bank (SBNY – later bought by New York Community Bancorp (NYCB)) became the largest banks to fail since the financial crisis. The US government seized control of both and waived the FDIC $250K cap, guaranteeing all deposits.
2. First Republic Bank (FRC) received an infusion of $30 billion from various larger US banks to shore up its liquidity. Standard & Poor’s cut FRC’s rating to junk (BB+), then again to B+.
3. The above had ripple effects on many US regional banks which saw sharp stock price declines as investors feared runs (big deposit outflows) on these banks.
4. Moody’s changed its outlook on the US banking system from stable to negative.
5. UBS (facilitated by the Swiss authorities) agreed to buy Credit Suisse (CS) for 3 billion Swiss Francs ($3.25B) to try to stem the risk of contagion in the global banking system. This provided some optimism for most banking stocks.
6. Deutsche Bank (DB) saw volatility as the price of its credit default swaps (the cost of insuring the bank) rose, scaring investors, but that proved to be short-lived.
7. First Citizens Bank (FIZN) acquired SVB’s deposits and loans, reopening 17 branches under new ownership – instilling some much-needed confidence in the banking system.

Equity market performance: Big-tech companies provided leadership for growth stocks, continuing this year’s trend of outperforming value companies:

1. March Performance:
   • Dow rose 1.89%
   • b. S&P 500 gained 3.51%
   • c. Nasdaq rallied 6.69%
2. Year to date through March 31st:
   • Dow is up 0.38%
   • S&P 500 is up 7.03%
   • Nasdaq is up 16.77%

In what might be hard to believe, the Nasdaq is now considered to be in a new bull market. The technology
focused index ended the month up more than 20% from its low in December. On the other end, value stock gains
have been muted due to weakness in the financial and energy sectors.

US Fixed Income

The issues in the banking industry caused interest rates to plummet from their 16-year highs, perhaps as investors
flocked to the safety of high-quality US Treasury bonds (driving prices higher and inversely, yields lower). There
were also beliefs that many hedge funds were covering their shorts on Treasuries.

The 1-year US Treasury is yielding about 4.60%, the 2-year at 4.10% and the 10-year around 3.50% (all as of
March 31, 2023). As a point of reference, at February month-end, yields were 5.10% (1-year), 4.80% (2-year) and
3.95% (10-year).

Regards,

Mike & Steve