Dear Clients & Friends,
The resilience of the stock market during March was remarkable, despite pockets of uncertainty surrounding the strength of the economy—and serious concerns over the durability of the banking system. The ability of the market to navigate nearly two weeks of negative headlines truly tested the underlying resolve of the market’s capacity to look forward.
This resolve reinforced our belief that despite setbacks, we may start to see the beginnings of a new bull market emerge, especially as the Federal Reserve winds down its campaign to bring down inflation. By all indications, the Fed is edging closer to its final interest rate hike, which should help bolster both consumer and business confidence.
According to The Conference Board, consumer confidence inched slightly higher during March, reflecting a solid labor market with an unemployment rate of 3.6%—the lowest it has been in over 50 years. Additionally, the National Association of Home Builders (NAHB) confidence index continued to climb higher in March, representing the third straight month of improvement. With mortgage rates drifting lower, sales of new homes began to pick up during the month, and many industry experts were commenting that the housing market may be on the cusp of “bottoming out.”
Without question, the strains in the banking system shook investor confidence and the market’s positive trajectory, but the quick response from government agencies—particularly the Fed’s lending facility, designed to help banks shore up their balance sheets quickly—helped restore calm in the market. Fed Chairman Jerome Powell echoed the reassuring words of many officials in the U.S. and abroad when he said the U.S. banking system “is sound and resilient with strong capital and liquidity,” and that “deposits are safe.”
Helping to further strengthen support in the country’s financial infrastructure, and ease investor anxiety, was the headline that First Citizens Bank would purchase “all of the deposits and loans” of Silicon Valley Bank, the bank that collapsed quickly and ignited a spark of fear and panic across financial markets. With the private sector showing the value it sees in the ailing bank, we saw renewed optimism and faith in the overall banking system, and markets in general. First Citizens share price climbed 53% on the first trading day following the announcement, demonstrating the market’s confirmation that the deal made sense—and that the banking sector is safe (emphasis added).
Investors were able to continue to find value in the market as stability returned. However, their patience was tested yet again when Credit Suisse, a major global bank with a strong presence in the United States, came under severe pressure. That situation was quickly resolved when Credit Suisse was immediately rescued by merging with its long-time rival, UBS.
Overall, it appears that markets are starting to factor in the strong possibility of lower interest rates and a weaker U.S. dollar, which helps U.S. exporters compete globally and would help soften overall financial conditions around the world. It’s also important to keep in mind that it’s incredibly rare for the stocks to suffer negative returns two years in a row.
We continue to counsel working your plan and focusing on the things you can control. We are steadfast in our conviction that the power of free market capitalism will ultimately deliver sizable investment returns over any meaningful stretch of time, despite media headlines designed to shake our nerve and test our resolve.
As always, thank you for your continued trust and confidence. Please reach out directly with any questions.
Nick Enzweiler, CFP® is a registered representative with, and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group, a registered investment advisor. Strategic Wealth Advisors Group and Mercer Partners Wealth Management are separate entities from LPL Financial.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 4, 2023.
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All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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