May Update
Despite volatility along the way, markets gained so far for the year 2023. Markets rallied in January with hopes that the Fed would soon halt interest rate hikes. The Fed raised rates by 25 basis points in February and again in March, taking the federal funds rate to 4.75% – 5%. Data indicates that inflation is cooling, and the Fed has toned down their guidance on further tightening. Headline CPI inflation has fallen from the peak of 8.9% last June to 5.0% in March. The cost of core goods and food continues to come down. Energy prices have also come down after they soared in 2022 due to the invasion of Ukraine. Shelter inflation remains elevated.
Inflation and the Fed rate hikes took a back seat when Silicon Valley Bank collapsed on March 10th. This was then followed by the shutdown of Signature Bank, a $30 billion rescue package for First Republic Bank, and the acquisition of Credit Suisse by UBS. Stocks dipped sharply in reaction but recovered to finish the month and quarter higher.
Job creation slowed in February but still came in stronger than expected. Nonfarm payrolls rose by 311,000 in February, above the 225,000 Dow Jones estimate. Leisure and hospitality led the employment gains.
Globally, central banks continue to fight inflation with monetary tightening. The Bank of England and the European Central Bank both approved rate hikes. China is bouncing back following the easing of COVID-19 lockdowns and both Europe and China are benefiting from falling energy prices and job gains.
The S&P 500 was 7.4%, the Russell 2000 was 2.7%, the MSCI EAFE was 8.5% and the Barclay’s Aggregate Bond was 3.0% for the Year-to-Date.
Harbor Investment Committee
