Jordan Daugherty, Investment Analyst, presents our May video market update and shares what FSA is doing to respond.
May 2023 Stock Market Update Transcript
Hello, I’m investment analyst Jordan Daugherty, and this is FSA’s market update for May 2023. Financial markets have been eerily quiet since the banking crisis emerged in March. Despite the headwinds, the S&P 500 finished April in positive territory, up almost 2%, at 1.6%. The move was largely powered by shares of big tech. Gold remains near its all-time high, jolting above $2,000 an ounce in late March and staying there since. The U.S. Bond Aggregate has retaken all the ground lost in its 4% slide in February, but it spent April range bound. Its action resembled the general hush witnessed throughout major markets.
Instability from the banking sector continues to take a toll on small cap stocks in particular. These are companies with valuations in the range of 250 million to $2 billion. As a side note, Apple, the largest valued stock in America, is valued at almost $3 trillion. You can see in this chart here, Small Caps, as measured by the Russell 2000 Index, have struggled to find their footing since dropping nearly 10% at the start of March. They showed signs of potential rebound, but after San Francisco-based First Republic Bank was seized by regulators May 1, Small Caps returned to their March lows.
You can see the NASDAQ reflects a very different story here, having suffered a minor 5% hiccup before shooting up 10% over the last two months. Granted, it’s a lot of ground to make up after last year, but year to date, the NASDAQ has gained 16%. For some it only added to the suspense. The VIX Index, or the Fear Index as some call it, ended April at its lowest level since November 2021. Whether this means smooth sailing for May or a calm before the storm, no one can quite predict, but cautious optimism alongside our evidence-based decision making will allow our investment team to participate in the market and use our FSA Safety Net® as downside protection.
Inflation was one of the main narratives in provoking last year’s bear market. It remains the Fed’s primary objective to tame inflation by way of higher interest rates. Speaking of which, the latest rate hike brought the Fed funds rate to 5%. The most recent annualized inflation number was 4.9% for April. This marks the tenth month in a row of successful declines. The high watermark was June of last year when inflation touched 9.1%. We hope the downtrend continues. This will be good for markets.
If you’re still wondering where inflation came from, it could be attributed to our pandemic relief and recovery programs, as well as a global supply chain crisis. For two years, from 2020 to 2021, $4 trillion were issued to fight the effects of COVID-19. To give you a sense of this colossal sum, $4 trillion, the spending for the year of 2019 by the federal government came to a total of four and a half trillion dollars. Put another way, the funds equaled about one-fifth the U.S. GDP. So slowly but surely, we’re seeing a natural deceleration as supply chains have recovered and the effects of these COVID response and recovery programs wind down.
That’s it for this market update. Thank you for watching, and we’ll see you next time.
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