Market Commentary — March 27, 2023

Index returns varied widely last week as the banking industry and recession worries weighed on small-cap and value names, with large-cap growth stocks benefiting the most from the reset in interest rate expectations. The NASDAQ Composite outpaced the Russell 2000 by 8.28% and financials and the small real estate sector suffered as well.

The Fed still raised interest rates by 25 bps but teed itself up for a pause or even a pivot. Powell’s prepared statement declared that it was “too soon to tell how monetary policy should respond” and warned that policymakers still “anticipate some additional policy firming may be appropriate.” Although Powell indicated that he doesn’t see rate cuts this year, the futures market is still pricing in a 98.2% likelihood that rates would end lower by year-end. And the CME FedWatch tool has those odds at 94.8% that cuts would start this summer.

The consensus is that a credit tightening cycle is doing the work that the Fed was trying to do raising rates to slow the economy and fight inflation. That being said, weekly jobless claims remained near a five-decade low, and S&P Global’s Composite Index of current services and manufacturing activity released Friday, jumped from 50.1 to 53.3 ( 50+ indicates expansion), indicating the fastest pace of private sector growth since last May. Plus new orders turned higher for the first time since September. But of course, those measures are backward looking pre the bank crisis.

In ETF news, judges appear sympathetic to Grayscale’s arguments in its lawsuit against the SEC that its application for a spot Bitcoin ETF was not treated fairly relative to futures approvals.

Globally listed exchange-traded funds garnered more than $14B in positive capital flows during the month of February marking it the segment’s 35th consecutive month of net inflows.

The pitch for active fixed income management in times of turmoil and uncertainty may be compelling, but Bloomberg reports that only 40% are beating their benchmarks YTD.

There is a slew of economic data out next week including inventories, home sales, consumer confidence, jobless claims, revised GDP, and personal income as we march into the last week of the quarter. Maybe it will make us smarter? Have a great week!

Jane Edmondson
CEO and Co-Founder

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