Market Commentary — April 17, 2023
The major benchmarks ended the week higher last week, as investors balanced the likelihood of recession versus signs that inflationary pressures are abating.
Earnings season also kicked off with reports from banking giants JP Morgan Chase, Wells Fargo, and Citigroup, all three of whom topped consensus expectations and gained deposits from smaller, regional banks post the Silicon Valley Bank and Signature Bank failures. FactSet’s estimates expect S&P 500 earnings to contract 6.5% on a year-over-year basis in the first quarter.
The most highly anticipated event last week was the release of the March CPI data. Stocks jumped on news that inflation only increased 0.1%, below expectations, bringing the year-over-year rate to 5%, the slowest pace since May of 2021. But given that the Fed is still targeting 2%, it reminded folks, there is still a ways to go.
In other positive inflation news, core (ex-food and energy) PPI declined 0.1% in March, marking the first decrease in business input prices since the height of the pandemic shutdowns of April 2020.
But bond investors seemed to interpret Friday’s data as giving the Fed room for one more rate hike, resulting in a rise in longer-term Treasury yields.
Speaking of bonds, I gained some great insights attending a bond manager-sponsored event this week.
1. BONDS ARE BACK! After last year’s dismal returns, bonds should deliver nice returns for investors in 2023, as the Fed nears the end of its tightening cycle, inflation comes down, and as recession becomes a concern, rates move lower by year-end.
2. Most advisors are increasing duration and focusing on high credit quality.
3. If a recession is indeed on the horizon (currently a 2/3 probability), even a mild one, active management of fixed income might be beneficial to best capture alpha opportunities. For example, certain traunches of mortgage-backed securities look particularly attractive but are not easily available in a passive vehicle.
In new ETF news, Roundhill launched the Rounhill BIG TECH ETF, VanEck launched a Robotics ETF, and Capital Group announced the launch of three new ETFs: Capital Group World Dividend Growers ETF, Capital Group Core Balanced ETF, and Capital Group International Equity ETF.
And in filing news, EQM’s latest index, an Index we helped develop with music producer David Schulhoff, the MUSQ Global Music Industry Index (MUSQIX), has been licensed as an ETF on ETC’s white label trust, scheduled to be effective the end of June. The index holds companies with 50% revenue or $1 billion in sales from the global music biz including music streaming, music content, and distribution, live music events/ticketing, satellite/broadcast radio, music equipment/technology, music funds, and royalty trusts.
Have a great week everyone, and if you are in Southern California, there are two great events to attend, April 18th, 4-7 pm, Women in ETFs So Cal and San Diego CFA Society | Investing with Impact in La Jolla/San Diego and Orange County CFA Society | Wealth Management Symposium, April 19th, 8-6:30 pm in Newport Beach.
I will be at both events in support of our new WE So Cal Chapter. Hope to see some of you there!
CEO and Co-Founder