Markets Shrug at 1st Quarter Economic Concerns

By Ben Dolan

What adjectives would you use to describe economic conditions in the first quarter of 2023? I’m guessing very few of them would be positive. Concern regarding bank failures, inflation, recession, and geo-political turmoil (e.g. spy balloon, war in Ukraine) dominated the news cycle. Given the overwhelming amount of fear and anxiety, especially that peddled by irresponsible media looking for quick clicks and prone to hyperbole, you might expect markets to be negative as well. You’d be wrong.  

According to Morningstar, the S&P 500, the most popular barometer for the US stock market, returned 7.5% for the quarter. International markets also did very well, with the MSCI World ex US returning 8.02%. Note, these returns are not far from their long-term annual averages.  

Emerging markets were also positive, with the MSCI Emerging Market Index returning 3.96%. Global real estate did not keep up with broader equity markets, but was still positive, with the S&P Global REIT index returning 1.65%.

After a terrible 2022, fixed income turned positive in the first quarter with a return of 2.96% for the Bloomberg US Aggregate Bond Index.  

Three years ago, those in cash would have been kicking themselves for missing out on a jump in markets experienced in the first quarter. Not so today. The current yield-to-maturing on a one-month US Treasury is just over 4%, and one month fully insured CDs are yielding 4.65%. While I agree that 4% feels better than the next-to-nothing we were getting a few years ago, returns on cash are still lower than inflation, which means the erosion of purchasing power.

Often, the fear and anxiety we feel is not reflected in financial markets that move at lightning speed when new information is learned, which is why it’s so very important to do the best we can to take the emotion out of our investing decisions.

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Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.