US financial assets posted broad gains in the first quarter of 2023, but not without significant volatility along the way.
The central theses
- Despite a banking crisis and much uncertainty surrounding interest rates, equities and bonds ended the first quarter of the year.
- Gold also rose, nearing a record high.
- Cryptocurrencies extended their recovery from defeat in 2022, with Bitcoin and Ethereum both gaining more than 50%.
Equity and bond markets rallied in January amid optimism that global central banks, led by the Federal Reserve, may soon halt rate hikes – perhaps even set the stage for rate cuts by the end of the year.
But stronger than expected February economic data dashed those hopes. Then, in March, two major US banks failed and Swiss regulators forced the takeover of banking giant Credit Suisse, closing the book on its 166-year history. This sparked fears of a global banking contagion, prompting investors to flee equities for safer assets, including bonds.
By the end of the month, those fears were fading and investors again raised expectations that the Fed would cut rates by the end of the year – especially after the Fed hinted last week that it might at least pause its rate campaign.
Here’s a closer look at how various assets performed during the first quarter:
Shares
At the top of the quarter, the S&P 500 had its best January since 2019 and the tech-heavy Nasdaq Composite had its best start to the year since 2001.
Despite the turmoil later in the quarter, the S&P 500 gained 7%, building on a late 2022 rally. The Nasdaq Composite rose 16.8%. The Dow Jones Industrial Average gained 0.4%.
Within the S&P 500 Index, technology stocks topped the list for the highest single gains, with NVIDIA (NVDA) up 87%, Meta (META) up 73% and Tesla (TSLA) up 59%.
Unsurprisingly, individual bank stocks suffered the most. First Republic Bank (FRC) lost 89% of its value and Zions Bancorp. (ZION) lost 38%. Charles Schwab (SCHW) fell 37% as investors feared facing unrealized losses as many banks switched to money market funds.
Bind
US bond markets posted their worst returns in their history last year. However, they recovered slightly in the first quarter as yields, which move inversely to bond prices, declined.
The US 10-year Treasury yield opened the year at 3.88% and ended the quarter at 3.54%. In between, it fell to 3.30% and rose to 4.05%. For the quarter, the Bloomberg US Aggregate Bond Index gained 2.5%.
gold
As investors looked for less risky assets towards the end of the quarter, gold prices – viewed as the ultimate safe haven asset – soared.
During the quarter, spot gold rose 8.5% to $1,977.96 an ounce, its highest since March 2022 and near an all-time high.
crude oil
Oil prices fluctuated during the quarter, falling sharply amid concerns about the banking system, but rallied along with stock prices towards the end of the quarter.
West Texas Intermediate (WTI) crude oil contracts for May delivery fell 3.6% to $75.56 a barrel over the three-month period.
property
Rising mortgage rates have put pressure on the US housing market, where available supply for buyers remains limited. Meanwhile, the commercial real estate market is facing an oversupply of office space, to which workers have not fully returned since the pandemic.
Still, the FTSE Nareit US Composite Real Estate Index was down only modestly over the quarter, falling 1.7%. The average rate on 30-year fixed-rate mortgages fell slightly to 6.32%, down 10 basis points.
cryptocurrencies
Bitcoin is up 71% for the quarter from $16,576.25 to $28,419.36 and Ethereum is up 52% from $1,198.15 to $1,825.
Comments are closed.