Insights

U.S. Economic and Financial Markets Review

During the first quarter, global stock and bond markets continued their upward trends from the previous quarter. The S&P 500 index, a popular headline stock market index in the U.S., started off the year with strong performance and was able to stay in positive territory to end the quarter after shrugging off some late-period volatility caused by fallout from the collapse of Silicon Valley Bank. Bond markets also benefited from a flight to quality when yields plunged, as investors sought refuge while assessing market impacts from the banking sector turmoil both at home and abroad. The result was positive performance for the quarter across most major asset classes.

For the quarter, U.S. stocks (as measured by the Russell 3000 Index) gained 7.18%, and non-U.S. developed market stocks (as measured by the MSCI World Ex U.S. Net Index) gained 8.02%. Emerging market stocks (as measured by the MSCI Emerging Markets Net Index) gained 3.96%.

The U.S. Dollar Index, a measure of the value of the U.S. dollar relative to a basket of foreign currencies, decreased during the quarter by 1.0%. Over the past 12 months, the U.S. dollar increased by 4.3%. The increase in the dollar is a headwind to non-U.S. investments held by U.S. investors.

U.S. interest rates increased during the quarter as the Federal Reserve raised the target range of the federal funds rate from 4.25%-4.50% to 4.75%-5.00% with two 0.25% rate hikes in February and March.

U.S. Economic Review

The final reading for the fourth-quarter annualized GDP growth of 2.6% showed an expansion of economic output but at a slower pace than the prior quarter. The unemployment rate inched up by 0.1% from the end of last quarter to 3.6% through February. This coincides with a tight labor market; there were approximately 9.9 million job openings for 5.9 million unemployed workers at the end of February. Domestic inflation showed a reading of 4.6% in February as the Fed’s preferred gauge of overall inflation, the core Personal Consumption Expenditures (PCE), remained well above the Fed’s long-term target average of 2.0%. Headline inflation, as measured by the Consumer Price Index (CPI), closed out February with a reading of 6.0%. These readings tend to differ primarily because CPI includes volatile categories like food and energy in its methodology while core PCE does not1.

Financial Markets Review

Domestically, all size and style equity categories were up during the quarter. International developed stock markets also posted positive performance. For U.S. investors, international stock returns were positively impacted during the quarter by the weakening U.S. dollar.

U.S. large-cap stocks were the best performing equity asset class, and U.S. value stocks were the worst performing equity asset class during the quarter. Signs of easing inflation and the potential for future interest rate cuts likely led to positive returns for U.S. and global bonds.

In the U.S., small-cap stocks lagged large-cap stocks across all equity styles. Value stocks lagged growth stocks in all size categories. Among the nine style boxes, large-cap growth stocks performed the best and small-cap value stocks had the lowest return during the quarter2.

In developed international markets, large-cap stocks outpaced small-cap stocks in all style categories for the quarter. Value stocks lagged growth stocks in all size categories.

Among the nine style boxes, for International Stocks, large-cap growth stocks performed the best and small-cap value stocks had the lowest return during the quarter3.

For more on the markets, see our 1Q 2023 Market Review.

Important deadlines and dates

April 22…………… Earth Day

May 2-3………….. Federal Open Market Committee meeting

May 14……………. Mother’s Day

May 29……………. Memorial Day. The financial markets and ZRC’s offices are closed.

June 13-14…….. Federal Open Market Committee meeting

June 18…………… Father’s Day

June 19…………… Juneteenth. The financial markets and ZRC’s offices are closed.

July 4……………….. Independence Day. The financial markets and ZRC’s offices are closed.

July 25-26………. Federal Open Market Committee meeting

As always, we’re grateful for the opportunity to serve you and your loved ones. Please contact any one of us to address any concerns or questions you or a loved one might have.

Sincerely,

To schedule a 30-minute meeting with Barry Mendelson, CFP® – Wealth Advisor & Financial Planner https://calendly.com/zrc-barry-m/meet-with-barry

To schedule a 30-minute meeting with Kevin Goulding, CFP® – Wealth Advisor & Financial Planner https://calendly.com/kevin-goulding/meet-with-kevin

Sources:

  1. Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, U.S. Department of the Treasury, Morningstar Direct, Bloomberg, CME Group, April 2023.
  2. Morningstar Direct, April 2023. U.S. markets represented by respective Russell indexes for each category (Large: Russell 1000, Value, and Growth, Mid: Russell Mid Cap, Value, and Growth, Small: Russell 2000, Value, and Growth).
  3. Morningstar Direct, April 2023. International markets represented by respective MSCI World EX USA index series (Large: MSCI World EX USA Large, Value and Growth, Mid: MSCI World Ex USA Mid, Value, and Growth, Small: MSCI World Ex USA Small, Value, and Growth).

All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future returns. Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.