The market had a decent recovery in the first quarter of 2023. Cumulatively, however the market is still behind where it was at the beginning of 2022. Technology stocks rebounded in the first quarter of 2023 resulting in strong returns for the NASDAQ (up 20%) and S&P 500 indices (up 7.5%). Cumulatively, these indices are still down 10.8% and 7.8% for the last 12 months ended March 31, 2023. Returns for publicly traded ETFs representing each of these investment types is shown below.
International stocks also did well for the quarter (up 7.6%) and now flat for the last 12 months. Value stocks and stocks selling at reasonable prices relative to their fundamentals and growth prospects were overall up slightly for the first quarter and down only 4% for the last 12 months, faring better on a cumulative basis than the technology leaning NASDAQ and S&P 500 Indices. Small cap stocks had small gains for the first quarter and cumulatively are down in line with the S&P 500 large cap index.
Long term and intermediate bond funds had a very good quarter – up about 3%, however they are still down 3 to 5% over the last 12 months. Short term U.S Treasury bonds funds we up about 1.6% for the quarter and up slightly over the last 12 months.
Commodities were down for the quarter and the last 12 months as prior inflationary pressures subside.
The markets remain volatile, and I would not expect this to subside anytime soon. The Fed is still tightening monetary policy and could raise interest rates further. The recent banking crisis is likely to result in a tightening of bank lending standards meaning some companies may see higher interest rates on borrowing and more difficultly in borrowing. All of this increased the possibility of a U.S. recession this year. As a result I would remain defensive at this time with a bias towards stocks and stock funds of companies with strong fundamentals (earnings and cash flow), reasonable prices and less susceptible to a U.S. recession. A continued bias to shorter term bonds – particularly shorter term U.S. Treasuries paying 4 to 5% interest is also in order. However, I would expect opportunities to improve for intermediate term bonds over the remainder of 2023.