facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Newsletter - 1st Quarter 2023 Thumbnail

Newsletter - 1st Quarter 2023


The first quarter of 2023 had investors sitting on the edge of their seats as the equity markets took them for a bumpy ride. The first three months of 2023 were a classic example that volatility could be very prevalent in equity markets. Despite a banking crisis, stubbornly high inflation rates, additional increases in interest rates, and economic uncertainty, U.S. equities still managed to end the quarter on a high note.  

U.S. stocks had a late-quarter comeback following positive news that the Federal Reserve’s preferred inflation gauge dipped in February after an uptick in January. The core personal consumption expenditures price index (PCE) (excluding food and energy) increased 4.6% in February from a year earlier, slowing from a 4.7% 12-month annual pace in January. This was a welcome sign that the Fed is gaining traction in its long battle against inflation. (Source: barrons.com, 3/31/2023)

The Dow Jones Industrial Average (DJIA) ended the quarter up 0.4% after rising 3.2% in the last week of the quarter, its most significant one-week gain since the week ending November 11, 2022. The DJIA closed on March 31, 2023, at 33,274. The S&P 500 rose 7.0% during the first quarter, its best three-month performance since the fourth quarter of 2021. The S&P 500 closed the quarter at 4,109. (Source: cnbc.com, 3/31/23)

Despite the first quarter’s strong performance, inflation rates remain well above the Fed’s 2% target range. The U.S. annual inflation rate was 6.0% for the 12 months ending February 2023. Key indicators for the Fed are still showing strong, including the unemployment rate at a 50-year low of 3.4%.  

In summary, during the first quarter of 2023, growth was modest, job gains increased steadily, and unemployment remained low. While inflation shows signs of slowing, it remains elevated and still poses a threat. With monetary policy changes and signs of slowing growth, it is safe to say that volatility should continue into the second quarter.

"Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy," Fed Chair Powell stated during testimony before the Senate Banking Committee in early March. (Source: npr.org, 3/7/2023)  The next FOMC meeting is set for May 2-3, and another rate hike could be enacted.  

Equities are most likely to continue to remain hypersensitive, surging on positive news days and retreating when negative economic data is released. We continue to abide by our belief that investing is a long-term commitment and can provide a better safety net than short-term trading and investing. As your financial professional, we are committed to keeping you apprised of any changes and activities that could directly affect you and your unique situation.


Inflation peaked in the summer of 2022 and, since then, has primarily been on a downward trend but is still not close to the Feds target rate of 2%. The bad news is that the Fed continued increasing the federal interest rate range in the first quarter of 2023. The good news is that the rate at which they increased the range was not as steep as last year’s rate hikes. On February 1, we saw a 0.25% increase, bringing the interest rate range to 4.50 – 4.75%. Then again, in March, the rate was increased by another 0.25% to a range of 4.75 – 5.00%. The Federal Reserve still expects to bring the interest rates to 5.1% by the end of 2023, meaning they expect one more rate hike before they pause. Today’s rates are currently at their highest level since September 2007.

The silver lining of these higher interest rates is certificate of deposits, and even savings accounts yield some of the best returns investors have seen in a long time. It is now not unusual to see some banks offering over 4% with CDs.

We are closer to the end of a Fed hiking cycle than the beginning. However, there could still be some tightening in the near future. The Fed will continue to monitor information and key indicators before they stop the cycle. Fed Chair Powell stated that “rate cuts are not in our base case” for the remainder of 2023. (Source: cnbc.com, 3/22/2023)


Treasury rates took a hit when the shutdown of Silicon Valley Bank, the biggest bank failure since the financial crisis, triggered many investors to run for cover in safer assets, such as government bonds. The Monday after the Silicon Valley Bank collapse, the 2-year Treasury yield posted its biggest 3-day drop since the aftermath of the 1987 stock crash on October 22, 1987. The benchmark 10-year Treasury note yield fell, settling at 3.543%. (Source: cnbc.com., 3/13/23)  Despite all of this, bond prices rose as investors suspect the Federal Reserve will not raise rates as high as expected due to the banking crisis. 

Treasuries still yield favorable returns in this high-interest rate environment, but the recent wavering was a good reminder that things can take a turn anytime. Yields move inversely to prices, and one basis point equals 0.01%. In March, the 2-year rate traded in a widespread range of more than 150 basis points.  

Volatility has been prevalent in what is typically a less volatile sector for investors. Bonds are typically a good option for a conservative, diversified, and well-balanced portfolio, as they are usually more stable than stocks. The window of opportunity may narrow to get lower-risk, higher-yielding bonds if the Feds decide to cut rates, as bond prices and interest rates move in the opposite direction.

We will continue to monitor how the Fed’s movements and rising interest rates affect bond yields.


Despite the interest rate volatility and short-lived banking crisis during the quarter, U.S. equity markets managed to hold onto most of the gains that were earned during the first two months of the year. Although U.S. stocks achieved mid-single-digit returns for the broad market during the quarter, the volatility that ensued in March favored larger companies, with large-cap stocks besting their smaller-cap peers by a wide margin.

The lower-than-expected inflation readings gave markets hope that the Fed would be able to pause its rate hikes this year. While the March banking crisis fed into the narrative that the Fed could eventually start lowering rates at some point over the next 12 months. Both conditions led to a large outperformance of growth stocks over value stocks for the first three months. The interest-rate-sensitive sectors of Information Technology, Communication Services, and Consumer Discretionary were the three top-performing sectors for the quarter, which managed to post noticeable double-digit returns. These three sectors were also the worst-performing sectors for 2022 in the wake of one of the Fed’s most hawkish rate hike cycles in history.  

The unforeseen banking crisis fallout and growth scare concerns caused Financials and Energy to be the weakest performers for the quarter, with both sectors posting mid-single-digit losses. This doesn’t come as much of a surprise to investors, given the situation that unfolded in March. However, the defensive sectors of Healthcare, Utilities, and Consumer Staples underperformed the broad market despite the turbulent conditions. Historically, these sectors are the bastion of stability in times of turmoil. Based on the sector performance, it seems that the market placed more emphasis on the potential for interest rates to moderate than on the questions surrounding the banking system’s stability.

As Q1 earnings season comes into view, it will be important to assess how companies have managed to weather the inflationary environment and growth slowdown. We will be paying close attention to bank earnings to see if the troubles that developed with a handful of mismanaged banks are more widespread or just company-specific.


It’s fair to say that the first quarter of 2023 was filled with ups and downs. In January, we saw a decent upward trend in equities, but then in February, the Fed raised rates by .25%. Equity markets responded unfavorably to the announcement. Finally, in March, we saw another rate increase and a brand-new surprise when three major financial institutions, Silicon Valley Bank, Signature Bank, and Credit Suisse, collapsed. This triggered more market instability and uncertainty. But somehow, the quarter still ended on a positive note.  

What will the next quarter and beyond bring for investors? The past few years have taught us that it’s a better practice to expect the unexpected and be prepared for anything the economic environment throws at investors rather than trying to predict the future of equity markets. No one can predict what the future holds. Our goal as your financial professional is not to try to predict the future but provide you with a solid financial plan that is designed to weather any market environment best.  

The Fed still has its eye on its goal of a 2% inflation target, and most Fed officials are anticipating one more rate increase in 2023. The collapse of sizable banks has created another concern for the Feds. In response through the FOMC’s press release on March 22, 2023, they stated that they believed the “U.S. banking system is sound and resilient.” (Sources: bankrate.com. 3/29/2023, federalreserve.com, 3/22/2023)

We stand by our strategy that investing in equities is a long-term commitment. Investors can expect to continue to face a challenging market environment, and the need to look at long-term stability and quality and practice patience is key to your financial long-term growth.   We want you to be comfortable knowing that we are staying apprised of the issues that may affect your situation. Having a proactive approach to your financial goals and a well-defined investment discipline is important for your long-term success. Maintaining that discipline in the wake of financial media influences is critical.

This quarter, Berkshire Hathaway CEO Warren Buffett published his annual letter to shareholders.  His letter has been heralded as gospel for decades among investors eager to pick the brain of one of the most successful investors of all time, who sits amongst the richest people in the world.  

His 2023 letter reinforced his views that investing is long-term and that his secret sauce is time.  He says there is a “lesson for investors: The weeds wither away in significance as the flowers bloom.”

He quoted his business partner, fellow billionaire Charlie Munger who said on a recent podcast, “The world is full of foolish gamblers, and they will not do as well as the patient investor.”

He specifically shared that after investing for 80 years, “I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”  When it comes to investing, discipline, and patience can be very rewarding.

Discuss Your Concerns With Us!

Whether you are seeking investment advice, tax strategies, estate planning, or a financial plan, our advice is not one-size fits all. We are ready to provide you with financial solutions to achieve a better retirement. We will always consider your feelings about risk and the markets and review your unique financial situation when making any recommendations.