Q1 2023 Market Commentary

In the first quarter of 2023, we bore witness to an almost inverse performance from that of the preceding year. Despite the challenging headwinds of a hawkish Federal Reserve (Fed), a downturn in global industrial production, a banking crisis, and volatile interest rates, the broad indices managed to end the first quarter on a positive note.

At a Glance

  • The S&P 500 Index rose by 7.0% (USD terms). Large-cap technology stocks made over 70% of the market’s gains, rebounding significantly since the end of 2022.
  • In Canada, inflation eased, prompting the Bank of Canada to pause its interest rate hikes and give time for the effects of previous tightening measures to permeate through the economy.
  • Eurozone stocks rose, as did those in Asia. Loosened Covid-19 restrictions and better corporate relations were positive for Chinese stocks, while Japan’s Nikkei 225 was also up.
  • During Q1, bonds were highly volatile, with rates dropping early in the quarter due to economic uncertainty and inflation, then soaring in the middle after a hawkish statement from Fed Chairman Jerome Powell, before plummeting again following a banking crisis on March 8th. This level of volatility suggests the bond market’s concern about the future of the economy, indicating challenging economic conditions ahead.
  • Canadian and US economies showed strong performance with robust consumer spending, stubbornly high inflation, strong employment, and a stabilized services sector. However, Q1’s banking crisis could have a significant impact on economic growth going forward as tighter lending standards feed through the economy.
  • According to FactSet, global earnings expectations are on a downward trajectory, with S&P 500 earnings anticipated to drop by -4.6% in Q1 2023. Although the markets have begun the year with a flourish, we anticipate earnings expectations will continue to decline.
  • Our defensive, capital preservation-first approach is at odds with the market’s latest behavior. Nevertheless, we remain confident in our approach, and we believe a well-balanced portfolio that diversifies across asset classes, sectors, and regions offers a better risk-reward ratio. Our focus remains vigilant to risk and carefully positioning our portfolio in companies that we believe offer the best long-term opportunities for sustainable, risk-adjusted returns.

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