Market Insights: First Quarter 2023

Raymond Eaton |

Markets Show Resilience to Start 2023

Stocks and bonds both logged modest gains in the first quarter of 2023 as hopes for an economic ‘soft landing’ and the Fed signaling that their historic rate hike campaign is coming to an end helped offset sticky inflation, recession worries, and the biggest bank failures since the financial crisis. 

Markets started 2023 with strong gains in January, which were primarily driven by a continued decline in widely followed inflation indicators. That decline in price pressures was coupled with surprisingly resilient economic data, especially in the labor market. Those forces combined to increase investors’ hopes that the Fed could deliver an economic ‘soft landing’, whereby the economy slows but avoids a painful recession while inflation declines to near the Fed’s target. Additionally, corporate earnings for the fourth quarter of 2022, which were reported in January, were “better than feared” and the resilient nature of corporate America contributed to the growing hope that both an economic and earnings recession could be avoided. 

In February, growing optimism for an economic ‘soft landing’ was delivered a setback, however, as strong economic data and a leveling off of inflation metrics led investors to price in substantially higher interest rates in the coming months. Stocks and bonds suffered mild losses for the month.

March began with investors still focused on inflation and potential interest rate hikes, but the sudden failure of Silicon Valley Bank, at the time the 16th largest bank in the United States, shifted investor focus to a potentially growing banking crisis. Signature Bank of New York failed just days later, and concerns about a regional banking crisis surged. In response, the Federal Reserve and the Treasury Department created new lending programs aimed at shoring up regional banks and preventing bank runs but concerns about the health of the financial system persisted and those fears weighed on markets through the middle of March. However, while the Federal Reserve hiked interest rates again at the March meeting, policy makers signaled that they are very close to ending the current rate hike campaign. That admission, combined with no additional large bank failures, eased concerns about a growing banking crisis, and the S&P 500 was able to rally during the final two weeks of March to finish the month with a small gain.

The Primoris Wealth Advisors Team