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Gains for Stocks and Bonds but the Ride Was Bumpy

Gains for Stocks and Bonds but the Ride Was Bumpy
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2 min 46 sec
Highlights from the Global Markets in 1Q23

U.S. Equity:  U.S. stock indices posted positive returns in 1Q but it was not smooth sailing; strong returns in January were followed by negative results in February and mixed performance across sectors and styles in March. The S&P 500 Index rose 7.5% for the quarter and the tech-heavy Nasdaq 100 soared 20.8%. Within the S&P 500, Technology (+22%), Communication Services (+21%), and Consumer Discretionary (+16%) rose sharply while Financials (-6%), Energy (-5%), Health Care (-4%), and Utilities (-3%) fell.

Growth stocks trounced value for the quarter (Russell 1000 Growth: +14.4%; Russell 1000 Value: +1.0%) due largely to the sharp outperformance of Technology relative to Financials. Technology comprises just over 40% of the Russell 1000 Growth Index versus Financials at just under 7%. Within the Russell 1000 Index, just five stocks: Apple (+27%), Meta (+76%), Microsoft (+21%), NVIDIA (+90%), and Tesla (+68%) accounted for 60% of the 1Q return and made up about 15% of the Index. Small value (Russell 2000 Value: -0.7%) was the one sector to post negative returns, hurt by its exposure to smaller banks. Banks comprise just under 20% of this Index and were down 17% for the quarter. Small cap stocks underperformed mid and large (Russell 2000: +2.7%; Russell MidCap: +4.1%; Russell 1000: +7.5%) across the style spectrum.

Global Equity: Global ex-U.S. markets also posted solid results. The MSCI ACWI ex USA Index gained 6.9% (Local: +6.2%). Results were mixed across developed markets but most delivered positive returns. Europe ex-U.K. (+12%) outperformed Japan (+6%), the U.K. (+6%), and Canada (+4%).

Emerging Markets: Emerging markets (MSCI Emerging Markets: +4.0%; Local: +3.8%) were mixed; India (-6%) and Brazil (-3%) weighed on broad market returns while China (+5%) and Korea (+10%) outperformed. Quarterly returns were positive across regions: Latin America (+3.9%), Emerging Europe (+1.5%), and Emerging Asia (+4.8%).

U.S. Fixed Income: Following the worst year ever for core fixed income, the Bloomberg US Aggregate Bond Index rose 3.0% in 1Q. As with equities, it was a bumpy ride with solid returns in January and March sandwiching a negative February. The yield curve remained inverted as of quarter-end, by 58 bps for the 2-year/10-year and 116 bps for the 1-year/10-year. Historically, a yield curve inversion has been a good indicator of a coming recession. High yield (Bloomberg High Yield Index: +3.6%) performed well as defaults remained low, supply subdued, and equity markets climbed.

Munis also had a good quarter. The Bloomberg Municipal Bond Index rose 2.8% and the ratio of AAA municipal yields to the 10-year U.S. Treasury fell to 65%, well below its 10-year average (88%).

Global Fixed Income: While short-term rates were broadly higher, longer-term rates fell across developed markets in 1Q. The Bloomberg Global Aggregate ex USD Index rose 3.1% (hedged: +2.9%). Emerging markets debt indices were also up (JPM EMBI Global Diversified: +1.9% and the local currency JPM GBI-EM Global Diversified: + 5.2%). Emerging market currencies, broadly, did well vs. the U.S. dollar during the quarter.

Real Assets: Real assets were mixed in 1Q but generally underperformed global equities. Gold (S&P Gold Spot Price Index: +8.8%), REITs (MSCI US REIT: +2.7%), infrastructure (DJB Global Infrastructure: +2.5%), and TIPS (Bloomberg TIPS: +2.0%) all posted positive returns. The S&P GSCI Index fell 4.9% with oil down about 7%. WTI Crude closed the quarter at $74/barrel, just before OPEC announced its intention to cut production in May.

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The Callan Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to any affiliate firms, or post on internal websites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business.

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