Q1 2023 Market Summary by Mesirow

Financial markets saw positive returns across most asset classes in the first quarter of 2023, despite an apparent uptick in uncertainty caused by bank failures in both the US and overseas. We do not necessarily see any systemic risk from these specific bank failures, but the events do point to challenges that many businesses and investments will face following last year’s sharp increase in interest rates. 

To paraphrase Warren Buffett, ‘It’s only when the tide goes out that you know who’s swimming without any clothes on.’ It is likely that the interest rate environment will continue to expose those who relied solely on speculation, leverage and low interest rates to achieve high returns. That said, we continue to find investment opportunities among high-quality businesses with strong balance sheets that are trading at reasonable valuations. Further, higher interest rates provide opportunities to earn improved returns in bonds and money markets as compared to the recent past. 

Investors should brace for continued volatility and uncertainty due to a possible recession, fluctuating inflation, and ongoing speculation about the Federal Reserve’s potential response to these trends, among other unknowns. This economic backdrop reinforces the importance of building a financial plan that focuses on your specific goals and utilizing an appropriate asset allocation of high-quality, battle-tested investments. 

Equities

Stocks were mixed during the quarter. The S&P 500 Index returned 7.5%, thanks to a sharp rebound in several technology and internet companies that struggled last year. The S&P Technology sector returned 21% in the quarter, while Communications stocks returned 22%. Strength in these sectors masked weakness in other areas. For example, financials, energy and health care stocks saw declines of 4% to 5% during the quarter.

These sector trends led to the Russell 1000 Growth Index returning 14.4%, while the Russell 1000 Value Index returned just 1%. The Russell Mid Cap Index and Russell 2000  Index (which consists of small cap stocks) returned 4% and 2.7%, respectively, during the quarter. 

Non-US stocks continued their recent outperformance over domestic markets, with the MSCI EAFE Index up 8.5% for the quarter. Over the last 12 months, the MSCI EAFE has declined only 1.4% compared to an 8% decline for the S&P 500. The MSCI Emerging Markets Index returned 4.1% during the quarter. 

Fixed Income 

Interest rates declined across most maturities, resulting in positive returns for bonds during the quarter. The Bloomberg US Aggregate Bond Index returned nearly 3% for the quarter. Most of this return came in March, when investors seeking safety moved into Treasuries following several regional bank failures. High-yield corporate bonds returned 3.6%, while floating-rate bank loans climbed 3.2%. The Bloomberg Municipal Bond Index gained 2.8%.

Commodities 

The Bloomberg Commodity Index fell 5.4% during the quarter. Oil prices were relatively unchanged and ended the quarter at $76 per barrel and gold prices provided a positive return of 8.1%. 

Important Information:
The Bloomberg Commodity Index is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited. 
The Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
The Bloomberg US Government/Credit 1-3 Year Index is an unmanaged index considered representative of performance of short-term US corporate bonds and US government bonds with maturities from one to three years.
The Bloomberg US High Yield Corporate Bond Index is a rules-based, market-value-weighted index engineered to measure publicly issued non-investment grade USD fixed-rate, taxable and corporate bonds. 
The LBMA Gold Price Index is the global benchmark for unallocated gold and silver delivered in London.
The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. and Canada.
The MSCI Emerging Markets Index is an index designed to measure equity market performance in global emerging markets.
The Russell 1000 Growth Index is a broadly diversified index predominantly made up of growth stocks of large US companies.
The Russell 1000 Value Index is a broadly diversified index predominantly made up of value stocks of large US companies.
The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.
The Russell Midcap Index is a market capitalization-weighted index comprised of 800 publicly traded U.S. companies with market caps of between $2 and $10 billion. 
The Standard & Poor’s 500 Index, often abbreviated as S&P 500, is an American stock exchange market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.
The S&P 500 Energy comprises those companies included in the S&P 500 that are classified as members of the GICS energy sector. 
The S&P/LSTA US Leveraged Loan 100 Index is designed to reflect the performance of the largest facilities in the leveraged loan market.
The West Texas Intermediate (WTI) oil, also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content.
Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements.

This report has been prepared for informational purposes only. It is based on information generally available to the public from sources believed to be reliable. No representation is made that information is accurate or complete. Any opinions expressed are subject to change without notice. Past performance is not indicative of future results. Yields are subject to market fluctuations. Additional information is available upon request. 

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