Market Commentary — April 3, 2023

Major equity indexes posted solid gains in the last week of the first quarter. Rising oil prices helped boost energy stocks, with the US benchmark WTI rising more than 9% for the week, back to the $70 a barrel level. Small caps also outperformed.

Bank stocks, which have declined sharply since the collapse of Silicon Valley Bank (SVB) and Signature Bank, rallied last week on new proposed banking regulation changes. The market also received positive news on the inflation front, with the personal consumption expenditure (PCE) price index for February coming in at 4.6%, below consensus.

Core PCE is the Fed’s preferred measure of inflation. So while the February 2023 reading was below the recent high of 5.4% reached in February 2022, it is still well above the Fed’s 2% long-term inflation target. The final estimate of Q4 2022 gross domestic (GDP) product growth, was also revised slightly lower to 2.6%. All of this provides more ammo for the Fed to ease it’s tightening stance.

The first quarter of 2023 saw a strong rebound in technology names, with the NASDAQ Composite TR up 17% and the S&P 500 TR up 7.5%. Developed International slightly outpaced the US market in Q1, with the MSCI EAFE Index advancing 8.5%. And small caps hurt the most by the banking crisis, trailed their large-cap peers, up only 2.7% for the quarter.

Looking at the top ETF performers in the first quarter, crypto and blockchain ETFs topped the leaderboard. Bitcoin surged 73% in the first quarter. QQQ was also a beneficiary of the tech rally, gaining 18% YTD as tech stocks return to bull market territory. The key factor driving tech names is the decline in rate pressures.

Schwab’s 5-10 Year Corporate Bond ETF (SCHI) logged a $4.6 billion inflow at the end of the quarter. And many ESG mandates saw large outflows. The iShares ESG Aware MSCI USA ETF (ESGU) experienced outflows of $5.25 during the quarter. Quoting the ETFStore’s Nate Geraci in the Financial Times, “ESG ETF inflows have waned over the past year due to a nasty combination of underperformance, political backlash, and investors generally questioning the overall merits of such an approach.”

At the issuer level, Vanguard led ETF issuers in Q1 flows, as BlackRock and State Street have both experienced outflows. And speaking of BlackRock, they are entering the Defined Outcome, Buffered ETF market with its first filing.

DoubleLine is increasing its ETF lineup with 2 active income ETFs, one focused on Commerical Real Estate and the other on Mortgages. And Roundhill launched the 3 new BIG ETFs to complement its BIG Bank product: BIG Pharma, BIG Homebuilders, and BIG Retail. Each offers extremely concentrated exposure to a few largest companies in a specific sector/industry.

Working on our full quarterly recap which will be out next week. Have a great week!

Jane Edmondson
CEO and Co-Founder

About

EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former Institutional Portfolio Manager with more than 25 years in the investment industry.

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