The market started off 2023 stronger than many predicted with companies that were down the most in 2022 sharply rebounding in January. By early-March, the market had given back almost its entire gain as the second and third largest bank failures in US history occurred sparking fears of a repeat of 2008. Unlike the Great Financial Crisis, the US Government took quick and decisive steps to shore up confidence in the banking systems backing all deposits at both Silicon Valley Bank and Signature Bank but stopping short of backstopping all deposits in the system. So far, further contagion has been held at bay, but many consider the incident to put the possibility of a soft-landing to rest. Despite the apparent stress in the system and the second derivative tightening consequences that will likely occur from the banking crisis, the Federal Reserve hiked rates a further 25bps in March bringing the benchmark federal funds rate to 4.75-5.00%. The median dot plot still shows rates peaking at 5.1% by the end of the year, implying one more hike this cycle. With the yield curve inverted since last Summer, a recession is largely expected to occur by the fall; however, the market continues to show resilience rebounding at the end of March to return 7.5% in the first quarter.
The Nasdaq Composite posted an impressive gain of 17.0% in the first quarter far out stripping the S&P500’s return of 7.5% and the Dow Jones Industrial Average measly gain of 0.9%. Seven out of the eleven sectors in the S&P500 posted positive gains during the period with information technology and telecommunications showing strong double digit returns of 21.8% and 20.5%, respectively. Consumer Discretionary, which was the worst performer in the fourth quarter, rebounded with a return of 16.1%. Financials were the worst performers over the period losing 5.6%.
Large-caps regained their leadership outperforming both midcap and small-caps. The Russell 1000 gained 7.5% compared to the Russell Mid-Cap Index return of 4.0% and the Russell 2000 Index’s rise of 2.7%. Growth materially outperformed value stocks with the Russell 1000 Growth Index gaining 14.4% compared to the Russell 1000 Value Index’s return of 1.0%.
Bonds rebounded in the quarter, with long-dated US Treasuries returning 6.6% while US Corporates did worse with the Barclays Aggregate returning 3.0%. The US Dollar declined 1.0% over the quarter but was up 4.3% YoY. Energy prices moved lower with West Texas Intermediate (WTI) crude declining 5.7% during the quarter and down 24.5% YoY. Gold gained 6.9% during the period while Bitcoin climbed an impressive 71.3% despite the building pressure on the cryptocurrency space from the government.
All data sourced by Bloomberg.
The NASDAQ Composite Index is a market capitalization-weighted index that is designed to represent the performance of NASDAQ securities and it includes over 3,000 stocks. The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. The Dow Jones Industrial Average (DJIA) is an unmanaged index composed of 30 blue-chip stocks, each with annual sales exceeding $7 billion. The DJIA is price-weighted, reflects large-cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes, such as the S&P 500. The Russell® 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. The Russell Midcap® Index, an unmanaged index, measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 1000 Growth® Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value® Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Barclays Long-Term Treasury Index includes publicly issued U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. The Bloomberg US Aggregate Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency). Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period typically occurs from 6th-10th business day based on the roll schedule.
The views expressed in this commentary reflect those of Miller Value Partners analyst(s) as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.
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