March in Minutes…
I admit to getting excited every year as the calendar turns to March, buoyed by the start of Spring, the extra hour in the evening courtesy of Daylight’s Saving or Opening Day of the baseball season. Having spent my entire life in the Northeast, I should know better, Mother Nature seems determined to keep us humbled as the last gasps of winter weather prevent us from putting the parkas away too soon. 2023 was no different, but it was not just snow in New England, but tornadoes in the Midwest & South and an “atmospheric river” soaking the West Coast. I can’t make this stuff up. The unpredictable weather patterns serve as a worthwhile metaphor for the market this past month, let’s just say “wild” comes to mind.
Having closed at 3970 on February 28th, the S&P 500 drifted higher to close at 4048 on Monday, March 6th, but as the week unfolded the hawkish comments from Fed Chair Jerome Powell as he testified before Congress spooked the market suggesting the Fed’s work was not done and more rate hikes were in our future. What went from bad to worse, as over the course of the next 48 hours, the news of several financial institutions wobbling, particularly Silicon Valley Bank had investors on edge. Twitter fueled bank runs will do that. A mere four days later, the market ended the week off nearly 5% from Monday’s highs, logging the worst week since last October. Fortunately, the Fed and Treasury, likely recalling the harm caused by early inactions during the GFC, intervened, instituting emergency measures to calm the fears in the market, allowing banks big and small to tap emergency lending facilities and orchestrating novel approaches to prevent further bank runs. Alas it was too little, too late for Silicon Valley Bank and Signature Bank, marking the collapse of the 2nd and 3rd largest banks in US history but perhaps a bigger disaster has been averted. So much for a sleepy start to Spring.
In retrospect, if someone were to tell you that we had a mini bank crisis you would have been forgiven for assuming the market would have had an awful month. Alas, much like has been the case in the post GFC world, the market showed some resiliency with the major indices managing to log positive returns for the month
- S&P 500 3.67%
- Nasdaq 6.78%
- MSCI EAFE: 2.54%
- MSCI Emerging Markets: 3.04%
- Bloomberg US Aggregate Bond Index: 2.54%
Technology (10.86%) and Consumer Discretionary (8.65%) were the top performers, while Financial Services (-9.55%) were the clear laggards.
How could that be??? The sharp decline in rates, as investors sought cover in Treasuries, fueled speculation that the economy would see further deceleration as tightening credit conditions brought on by the crisis would give the Fed ample reason to not just pause but cut rates later this year. As rates gapped down the effect was to bolster nearly all asset prices (including those bonds on bank’s balance sheets) and served as rocket fuel for the big tech stocks, accounting for a significant portion of the market’s return. The story is a bit more nuanced than simply lower rates driving stocks, the tight labor market means money in consumer’s pockets, yet we are also seeing inflation continue to moderate. The next few months will be very telling when it comes to where we go from here.
Seems like shooting down unidentified flying objects was an eternity ago…