March 2023 Market Insights
By: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS
Concerns about regional banks dominated headlines and markets in recent days. Next week, the Federal Reserve may increase short-term rates by 0.25% again but pause for a while after that. We were encouraged by the coordinated actions of the FDIC and other agencies to help prevent concerns at other financial institutions.
Banks/Fed:
As we mentioned in a special note to clients on March 13th, we felt the newly announced “Bank Term Funding Program” was significant to help ease concerns about funding withdrawals from many regional banks. To meet withdrawal requests, the program allows banks to use its bonds, at par value, as collateral to borrow from the Fed instead of being forced to sell the bonds and recognize a loss.
Expectations for the next move from the Fed on March 22nd recently indicated a hike of 0.50%. Now, however, expectations have downshifted to a hike of 0.25%, or even a chance of no hike, while expectations for additional rate hikes have vanished. We would welcome a pause from the Fed. As Chairman Powell recently stated, “The full effects of our tightening so far are yet to be felt” and we feel it would be prudent to allow more time for the effects to play out, particularly in light of continued improvement in inflation readings.
Economy/Inflation:
The most recent update for full-year 2022 real GDP was 2.1% and nominal GDP, which includes the effects of inflation, was 9.2%. The ISM Services report for February was strong while an inflation component in the report eased slightly. The employment picture also remains strong, with 311k jobs added to the U.S. economy in February. National unemployment ticked up from 3.4% to 3.6% due to a higher participation rate.
Consumer inflation for February was as expected, up 6.0% from a year ago. The prior month’s reading was 6.4%. Producer inflation was better than expected, up 4.6% from a year ago, compared to expectations of 5.4%. Supply chain conditions seemed to have normalized and oil recently fell below $70 per barrel, a level not seen since late 2021. If this holds, it will certainly help the next consumer inflation report and put less pressure on the Fed to keep raising rates.
Bonds:
In recent days, Treasury prices have moved higher in a flight to safety, which have pushed yields even lower. Earlier in March, 2-year Treasury yields surpassed 5% for the first time in many years. In a historic drop, the 2-year yield briefly dipped to 3.75% and is now close to 4%. 10-year yields were over 4% earlier in the month but are now around 3.5%. Broadly speaking, Treasury yields have come down towards the lowest levels seen in the past six months. This has affected mortgage rates, which have come back down below 7%.
Stocks:
Through March 16th, the S&P 500 gained over 3% this year. Over the past 9 months, the market gained 9% on a total return basis, even though it may not have felt that way. 3-year performance numbers are about to anniversary the COVID closing low set on 3/23/20. The S&P 500 subsequently reached a new closing high on 8/21/20. The S&P 500 has gained 21% in total since that August 2020 high through mid-March 2023.
FDIC (Federal Deposit Insurance Corporation):
As a reminder, FDIC’s standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. More details can be found here: https://www.fdic.gov/resources/deposit-insurance/. If you have large bank balances, we suggest you review your positions to ensure you do not have any uninsured deposits.
SIPC (Securities Investor Protection Corporation):
Your investment accounts at Schwab and/or Pershing are covered by SIPC up to $500,000 for securities and cash (including a $250,000 limit for cash only). Multiple accounts may have individual coverage, with more details here: https://www.sipc.org/for-investors/investors-with-multiple-accounts. In addition, both custodians have additional insurance through Lloyds of London, with additional details here for Schwab and Pershing, respectively:
• http://content.schwab.com/learningcenter/assets/pdf/Asset_Safety.pdf
• https://www.pershing.com/about/strength-and-stability
Buckingham is here for you:
Buckingham Advisors continues to grow thanks to introductions and referrals from our valued clients. All the while, our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please send this issue on to others. To get in touch directly, here’s a link: https://mybuckingham.com/contact.
Thank you for your continued trust and support.
Ryan P. Johnson, CFA, CFP®
Managing Director of Investments
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.