Mary Ann Drucker, Assistant Portfolio Manager, presents our March video market update and shares what FSA is doing to respond.
March 2023 Stock Market Update Transcript
Hello. I’m Mary Ann Drucker here with our video market update for March 2023. What a difference a month makes. The new year started off on a bullish note with both the equity and bond markets rallying in the month of January. Strength was evident across all areas of the markets with growth and small cap stocks and high yield bonds leading the way.
The market sentiment took a decidedly different turn once February rolled around, reminding us just how quickly things can change. The Fed started the month off with an expected interest rate hike and reiterated its stance for further hikes to combat persistent inflation. This was followed by a stunningly strong January jobs report that blew past estimates. While the report alleviated fears of a recession, it only stoked concerns that the Fed will continue to raise rates.
Further releases of economic data in the month of February only added to those concerns. By the end of the month, as this table shows, the markets all showed declines for the month of February with the Dow completely erasing its January gain and the US bond aggregate nearly reversing its gain. Growth in small cap stocks were weak in February, but they still managed to hold up better than other areas of the market. This was a noticeable shift from last year when growth in small caps were among the worst performers.
Conversely, commodities, which had a stellar performance in the first half of last year, have continued their decline into this year. As we often see when markets pivot, the areas that have seen the greatest weakness tend to be the ones that lead, while the former leaders are the ones now lagging. Clients who have been with us over the years and through various market cycles have come to expect FSA to raise cash when volatility picks up and positions breach their safety nets.
Equities are normally the asset class to bear the brunt of our trading during turbulent times, but the bulk of our selling in February actually came from the fixed income side of the portfolios. As the January rally in the broad bond market quickly faded, we exited high yield corporate bond positions, or in some cases we added an inverse high yield bond position. However, some areas of the bond market have actually performed well, such as floating rate bonds and short-term bonds which we hold in both the income and the income and growth strategies.
This table shows how the various strategies were positioned at the end of February. Our cash levels remain elevated as we monitor certain levels in both the stock and bond markets. Since May of last year, the S&P 500 has traded in a range from about 3,600 to 4,300. While the S&P did break out to the upside in January above its previous year-end peak, the fact that it rolled over again in February tells us that we remain in a volatile environment which requires the prudent deployment of cash.
We will continue to monitor the direction the markets take, and we will react accordingly. Even choppy markets can present pockets of opportunities, and we remain vigilant to find them.
Well, that’s it for this video market update. If you have any questions or comments about this content, please don’t hesitate to reach out to us. Until next time, thank you for watching.
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