Spring is in the air! Birds are chirping, the grass is turning green, and the weather is warming! If that is not enough to put you in a good mood, the stock market’s direction this year should help.
After a tumultuous 2022, the market kicked off January 2023 with a bang. Stocks and bonds alike rocketed up to start the new year. As February and March closed, some of the heat faded. However, markets still closed the first quarter in the green.
You may notice from the chart above that U.S. Small Cap Stocks experienced the only negative return in March. This is partly due to the highly reported banking failures. The small cap indexes have a larger allocation to regional banks than the large cap indexes. As banking stocks sold off in the aftermath of the SVB collapse, small cap indexes were hit harder than their larger counterparts. Now that this situation has at least settled down, we could see a sharp rebound in small cap stocks.
As we look forward to the rest of 2023, our view is still that the market will not find a lasting recovery until the Federal Reserve pauses, stops, or reverses direction on interest rates. I believe they should have stopped already, but it does appear that in light of recent inflation data, the Fed may pause interest rate increases in May or June. It will more than likely be June, so we have two more months of speculation concerning the Fed’s direction. Although I believe markets can hold their current level, I expect more volatility this quarter until we clearly understand the Fed’s decisions this spring/summer.
Another interesting trend that occurred this quarter was the resurgence of gold as a hedge. As our clients and frequent readers know, we have held gold in most of our portfolios since 2021. Gold served as a good relative hedge in 2022 as it was down merely .47% vs. -18.11% for the S&P 500. This year, however, gold has surged with our preferred gold-linked fund (GLDM) up 8.07% in Q1.
The performance of gold has the recent banking crisis to thank, but this is a great example of the power of diversification. Of course, we cannot know with absolute certainty what will happen in the market on a given day, week, quarter, or year. However, we know that if we own a diversified pool of assets, over time we will do well financially.
As always friends, if you have any questions, concerns, or if anything has changed for you financially, please reach out to your financial advisor. Enjoy the sunshine and we’ll be seeing you soon!
This commentary on this website reflects the personal opinions, viewpoints, and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Written by: Brice Carter