Equity Overview

Seven of eleven sectors in the S&P 500 rose in March, with technology the best gainer.  Financial stocks were the worst losers.  Continuing the trend in January and February, growth stocks again outperformed value.  Volatility was noteworthy, as the S&P 500 moved more than 1% on 11 of 23 trading days.

Macro Overview

Economic headlines in March were uninspiring.  Housing was solid but manufacturing, factory orders, and retail sales were weak.  Unemployment rose slightly to 3.6%.  Inflation as measured by the Consumer Price Index declined to 6.0% year-over-year, as expected.

The big news was the collapse of Silicon Valley Bank and Signature Bank.  Their balance sheets were weakened by large volumes of low-interest government securities that had lost significant value as interest rates increased.  Depositors panicked, resulting in a run on the banks which threatened to expand to the broader financial system.  Markets were rattled, but quick action by the Treasury Department and the Federal Reserve kept the damage contained.

Prior to the banking crisis, there was concern that the Fed might raise rates by 0.50% at its March meeting.  As events unfolded, perhaps to calm markets further, the Fed raised rates by only 0.25%.  Analysts are now projecting that the Fed will be lowering rates by the end of 2023, and that a recession is likely.  For its part, the Fed still projects that GDP will grow in 2023—albeit minimally, by 0.4%–thus avoiding a recession.