Market Commentary
Read the Spring 2023 WAA for our Market Quicktakes, Review and Outlook, and Much More
May 2023
Q2 off to a mixed start;
Large-caps and International led
The Second Quarter got off to a mixed start with large-cap stocks generally rising across the board in April; the Dow and S&P 500 gained 2.5% and 1.5%, respectively. The 2023 leader and tech-heavy Nasdaq was flat for the month and remained up 16.8% YTD, while small-caps and mid-caps dipped 1.9% and 0.9%, respectively.
Markets were on edge for much of April, following the mini-banking crisis in March. Another large bank, First Republic Bank, was seized by the FDIC in April and ultimately sold to JP Morgan on May 1. The Treasury and the Fed have reassured depositors the US banking system remains sound. In a bit of a flight to quality, large-caps outperformed small- and mid-caps, as noted above.
Overseas, developed market stocks posted solid gains of 2.5% in April, while emerging markets dipped 1.3%.
Interest rates were also mixed in April, with short-term rates rising in anticipation of another Fed 0.25% rate hike in early May, while intermediate-term and longer rates were down slightly to flat. The 10-Year Treasury edged lower 0.04% and the Bloomberg Aggregate Bond Index was up 0.6%.
Volatility remains in the forecast as the debt ceiling crisis looms. We continue to recommend investors maintain a long-term focus and remain disciplined and steadfast with their investment programs.
April QuickTakes
- April was a microcosm of 2023, though YTD leading Nasdaq was flat for the month
- Otherwise, US Large-Cap stocks posted solid gains, while Small- and Mid-Cap stocks dipped, which reflect the year-to-date mixed returns
- The Dow and S&P 500 led posting gains of 2.5% and 1.5%, respectively
- Overseas, developed market stocks posted gains in April, with the benchmark MSCI EAFE rising 2.5%, but Emerging Markets slipped 1.3%
- In anticipation of another 0.25% Fed rate hike in May, short-term interest rates edged higher, but intermediate-term and longer dipped reflecting the market's anticipation of a pause after the May 2-3 FOMC meeting
- The benchmark 10-year Treasury Note yield dipped 0.04% to 3.44% in April, and the Bloomberg Aggregate Bond Index edged higher 0.6%
The Outlook
As noted above, volatility remains in the forecast, and we urge investors to remain resilient. While largely absent last year and a rare occurrence, we anticipate a return of the virtues of diversification and the traditional risk relationship between stocks and bonds, with bonds again providing a ballast against stock volatility.
May is off to a bumpy start, but the major market indexes remain in positive territory for the year, save for the small-cap Russell 2000, which is down 1.2%. Of note and as expected, the Fed did raise policy rates 0.25% at its May 2-3 FOMC meeting. It was the 10th straight rate hike since last March totaling 5.00%, in the Fed's aggressive efforts to bring inflation down to its 2% target, by deliberately trying to slow the resilient economy. The unemployment rate remains near 50-year lows at 3.4% (April). However, forecasts are for a slowing economy and lower corporate earnings by year-end and into 2024, as well as an uptick in unemployment. The mini-banking crisis noted above has further complicated the Fed’s inflation fight. Inflation has been steadily declining from its 9.1% high last June to the most recent reading of 4.9% in April (released 5/10/23), though it has been stickier than anticipated. While the Fed left further tightening on the table if warranted, the market anticipates a pause by the Fed at the June meeting and going forward. The market is anticipating a rate cut at soon as September, though the Fed affirmed it doesn't expect to cut rates until 2024.
Both stocks and bonds are down to start May, as the debt ceiling crisis is looming and Treasury Secretary Yellen has pulled forward the potential default deadline to June 1. While we anticipate a resolution and avoid defaulting on our debt, as with past debt ceiling crises, there are global repercussions to playing political football with US credit ratings and the economy, particularly over paying the bill on money that has already been spent. Severe recession, status of the US$ as the world's reserve currency, US Treasuries as a haven of safety in times of crisis, higher future borrowing costs at lowered credit ratings, all hang in the balance.
The market environment for 2023 remains challenging, and we continue to encourage investors:
- Remain well-diversified
- Maintain discipline and patience
- Focus on the long-term
- Review your Risk Tolerance
Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.
~Your Nelson Securities Team
*Past Performance is No Guarantee for Future Results
