Week in Review: 2023 is off to a strong start despite market uncertainty

Week in Review – Friday, April 7, 2023

2023 is off to a strong start despite market uncertainty

The US stock market in the first quarter of 2023 got off to a positive start but not without volatility. January started off on firm footing, with a strong rebound in many sectors and stocks that had seen the greatest drawdowns in 2022 and on hopes that inflation had peaked and would move down in 2023. By early February, stronger than anticipated employment and consumer price index (CPI) data weighed negatively on sentiment and led to the expectations that more Federal Reserve rate hikes might be in store. Concerns flipped rapidly with the collapse of Silicon Valley Bank and fear about a credit crunch causing a deeper recession scenario took hold of the market. Expectations shifted at the end of the quarter that the Federal Reserve might pivot, ultimately sending investors back towards quality stocks. By the end of the quarter, U.S. stocks were up with the benchmark S&P 500 index a positive 7.5%, and the US Agg Bond index a positive 3.0%.

First Quarter 2023 – Equity Performance

Diving in below the aggregate level, the first quarter of 2023 saw a marked reversal in terms of the performance of stock styles with the hardest hit styles of 2022 (cyclical, small-cap, and quality) outperforming last year’s relative out performers (defensives, high dividend, and min volatility).

Stock Style (Factor) Relative Performance

The performance of stock styles when looking at 2022 versus 2023 shows that over any shorter-term periods significant variance can exist, but over longer-term periods attributes such as lower volatility, quality, and dividend payors have produced a relatively better performance with the added benefit of lower volatility. For long-term equity investment, we concur with the attributes that have proven themselves over time.

While the move up in the equity markets in the first quarter was welcome following 2022, positive performance in the bond market, following one of the worst years in history, was a breath of return to a sense of normalcy. With yields across bond categories still well above historical levels and the potential for an end to the rate increases by the Federal Reserve in sight, bond markets are an attractive investment for total return potential, and a buffer as concerns rise in terms of recession.

Uncertainty exists looking forward in terms of the economy, corporate earnings, and interest rates. While the first quarter of 2023’s performance was better than some investors feared coming into the new year, it reinforced the difficulty of timing markets and the benefit of a long-term balanced approach for investment.

Important Disclosures:

The preceding information is for general educational purposes only. It is not intended to be investment advice, and is not specific to any individual’s personal situation. Any decision about investing should be undertaken only after careful consideration of the investment’s risks, costs, liquidity or lack thereof, and the investor’s timeframe.

Investment Advice offered through Pallas Capital Advisors, LLC, a registered investment advisor. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product referred to directly or indirectly in this newsletter will be profitable, or equal any corresponding indicated historical performance level(s)
Investment Advice offered through Pallas Capital Advisors, LLC, a registered investment advisor.

Mark A. Bogar, CFA^®, CAIA^®
Chief Investment Officer
Pallas Capital Advisors

Stephen Kylander
Senior Portfolio Manager
Pallas Capital Advisors

The information contained herein is for informational purposes only, is not personalized investment advice and should not be construed as a recommendation to purchase or sell any particular security, sector or strategy to any individual person or entity. The decision to review or consider the purchase or sale of any security, sector or strategy mentioned should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional. Past performance should not be considered as an indicator of future results.

Investment Advice offered through Pallas Capital Advisors LLC, a registered investment advisor.

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