The week in review
- Case-Shiller U.S. HPI composite: -0.4% m/m
- Consumer confidence: 104.2 vs 101 expected, up from 103.4
- Initial jobless claims increased to 198k from 191k
- Headline/Core PCE: 0.3%/0.3% m/m
The week ahead
- JOLTS
- Unemployment
- PMI
Thought of the week
Market volatility persisted during 1Q23, but several of 2022’s underperformers experienced a notable turnaround, highlighting investors’ willingness to look beyond near-term challenges and to front run a dovish shift in monetary policy.
From a performance perspective, international developed market equities led the way, bolstered by cheaper relative valuations and surprisingly robust earnings. Well-capitalized European financials benefited from the return to a positive interest rate environment, while industrials were propped up by lower-than-feared energy costs. Emerging market equities also experienced gains, rising by 4%, as China’s reopening looks set to benefit from consumers tapping into excess savings amassed during lockdown.
Turning to U.S. equities, large caps rose by 7.5% and small caps rose by 2.7%. This divergent performance can be attributed to the higher weight of financials and lower weight of technology in the small cap index relative to the large cap index. Amid the regional banking crisis, investors leaned into tech relative to financials, particularly as technology companies had already taken steps to optimize costs and defend margins. Turning to fixed income, the prospect of a dovish shift by the Fed in response to the banking crisis led yields to decline, with U.S. fixed income finishing the quarter up 3% and global high yield up 3.1%. Lastly, REITs edged up 1.5%, supported by a slight improvement in mortgage rates and modest declines in home prices; in contrast, commodities fell by 8%, primarily due to lower energy prices.
