While I feel the bulls made lots of progress in the primary quarter, I feel it’s too early to say we’re completely out of the woods. So I assumed it was the proper time to look back at the primary quarter of 2023 and analyze the aspects which can be affecting the S&500 and what we are able to learn from it to perform higher in the approaching weeks and months. Read on for more….
(Please use this updated version of my weekly commentary, originally posted on April 7p2023 in POWR Newsletter Shares under $10).
The first quarter of 2023 is officially on the books. And man, was that weird. It looks like the one thing anyone predicted accurately is that he was STRESSED by volatility.
I went back and skim plenty of reports from the start of the yr to see exactly what the experts told us to expect in the primary quarter and beyond.
What was predicted at first of the yr
1) The recession hits the primary half of the yr. Whether it should be a light “soft landing” or a classic recession that may affect all corners of the economy has been debated, but just about all experts predicted we might have some kind of recession, probably in the primary half of the yr. .
2) Sell, sell, sell. Nearly every voice within the room was bearish in 2023, with most predicting a recent slump in the primary quarter. Many believed we might test the October 2022 lows – and even set recent lows – early within the yr before moving higher within the second half.
3) Set, hiiiiiiiiike! (I understand it’s a foul joke, but I manage to do it because I’m from Texas, and football is one among our top three exports.) In 2022, we saw an unprecedented pace of rate of interest increases and lots of experts believed it could proceed consistently throughout 2023… or so long as inflation stays elevated. Interestingly, many individual investors continued to trade the market as if the Fed were about to carry and even cut rates of interest in March.
4) Revenues of enterprises are falling for the yr. That too was a part of the recession equation. Still, the analyst consensus for the S&P 500 (SPY) the online profit margin was 12.3%, which was higher than the estimated net margin for 2022 of 12%. This means many experts were predicting a downward revision, which might put more pressure on the stock, resulting in deeper selling.
5) Growth stocks, tech stocks and cryptocurrencies are gaining ground. These were a few of the worst performing groups in 2022, and since most pundits expected more of the identical from the Fed, it made sense for these groups to proceed to have the upper hand. Many experts have also suggested staying away from retail and leisure businesses as they’re sensitive to the business cycle.
6) Quality firms are a protected purchase. We’ve seen many market strategists recommend buying quality firms because they might have the most effective probability of surviving (and potentially thriving) in a recession. In addition, firms with large debts on their books would probably collapse as economic conditions worsened.
7) Tech and small cap stocks rebound after bottoming out (possibly later fall or early 2024). While many analysts agreed that tech and small-caps would perform poorly in the primary six to nine months of the yr, many agreed that the anticipated slowdown would set the stage for a powerful recovery.
wow. We were VERY bearish at the top of 2022. Personally, my biggest prediction for this yr is that the Federal Reserve will proceed to be an enormous market driver, for higher or for worse. And that we’ll proceed to see bulls and bears fighting for ~secret special meaning~ behind every word out of Powell’s mouth.
What we actually saw in Q1
1) Buy, buy, buy! To the surprise of many investors, two of the main indices rose significantly in the primary quarter. S&P 500 (SPY) ended the primary quarter up 7% and the Nasdaq up 20.5%. The Dow – which consists of those major high-quality stocks that analysts really useful – fared worst, gaining just 0.4%.
2) Growth stocks, tech and cryptocurrencies were the clear winners. Despite the proven fact that many analysts said that these firms needs to be avoided, they performed the most effective in the primary quarter. The top five returns for the primary quarter are…
FSLY (Small Cap Cloud Provider) +116.8%
COIN (cryptocurrency exchange operator) +90.9%
NVDA (High Capacitance Semiconductor) +90.1%
META (large-cap technology conglomerate, also generally known as Facebook) +76.1%
EVGO (low power electric vehicle charging stations) +74.3%
Many of those high returns are likely attributable to prospective investors focused on holding rate of interest hikes on hold (which can profit tech, growth and risk stocks) COMBINED with the proven fact that many stocks on this category saw strong sales in 2022, so that they were outmatched at first.
3) The Fed… didn’t make it easy. First seemed to be doves, then hawks again, then doves again because the central bank decided to let data to steer. There is nothing fallacious with this strategy; nonetheless, it makes it easier for the Fed to act as if it will do one thing without actually committing to doing that thing. And so we have now investors fighting over whether we’ll have multiple rate hikes over the following nine months… or rate cuts. In short, Powell’s “agility” is chargeable for the high volatility available in the market. So far in 2023 we have now had two hikes by 25 bps, and the third is predicted in May.
4) The Fed… broke some banks. After nine consecutive hikes, on the weekend of March 10, two large banks collapsed attributable to unrealized losses on bond portfolios and liquidity problems. This gave Powell and other members of the Federal Reserve two problems to resolve – curbing chronically high inflation and strengthening the banking system. In a way, the banking crisis must have done a few of the Fed’s work for them; if banks turn out to be more picky about who they lend to, this might act as an extra anchor for the economy.
What’s next?
Right now, there are not two analysts who fully agree on anything, but listed below are some big predictions for the remaining of the yr…
1) One more Fed hike in May… then cuts at the top of the yr. This is predicated on the Fed’s final rate of interest goal of around 5.1%. Currently we’re at ca. 4.9%, so another hike by 25 bp. will put us on the forecast level. However, Powell continued to make it clear that they should not married to this level and we might even see more hikes (or pauses and even cuts) based on what the info shows.
2) A credit crunch attributable to a bank failure. One of the explanations the Fed only raised rates by 25 basis points last March (as an alternative of the 50 basis points everyone had originally expected) was since the banks were going to do a few of the labor. After the banking crisis, experts agree that almost all banks will begin to limit who they lend to, making it even tougher to access credit. Like rate of interest hikes, it will help decelerate the economy and produce down inflation.
3) Prepare for some sort of recession. Depending on who you discuss with, it could just be a technical recession where growth shrinks but we do not feel the pain as deeply as in previous recessions… or it may very well be a tough landing. While the labor market remained strong, manufacturing activity declined and the housing market eased significantly. The yield curve has also inverted, with the New York Fed’s recession model projecting a 54.5% probability of a US recession in the following 12 months.
4) Higher quality firms might be rewarded. While many experts say a recession seems imminent at this point, investors don’t must be marginalized. Let’s take this primary quarter for instance. Anyone who waited to place their money into work missed out on profit opportunities, though the outlook looked bearish at first of the yr.
It’s interesting (dare I say funny?) to look back at these projections for the following three months and see what the situation is. What are your predictions for this yr?
Are you purchasing quality or is your portfolio in danger? Do you think that we’ll see additional hikes eventually, or are you one among the numerous who expect a cut later this yr? I’m all the time excited to see what’s in your heads.
Good trade!
What to do next?
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All the most effective!
Margrave Meredith
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares closed Friday at $409.19, up $1.59 (+0.39%). Year thus far, the SPY has gained 7.41%, in comparison with the share increase of the S&P 500 index over the identical period.
About the Author: Meredith Margrave
Meredith Margrave has been a renowned financial expert and market commentator for the past twenty years. He is currently the editor of POWR increase AND POWR shares below $10 newsletters. Learn more about Meredith’s past, with links to her latest articles.
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