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

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.

Disclosure

The information provided on this page is for illustrative purposes only and is not intended to serve as investment advice. The information provided is as of particular time and subject to change at any time without notice.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes Indices makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment advisor, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this article. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice.