Market Update

Monthly Market Update – March 2023

The positive start to the new year for investors was “put on ice” in February as stocks stalled and bond yields rose again. Here’s a summary of the notable events that steered the markets.

Monthly market developments

  • Most major stock indexes fell in February, sparked by rising bond yields which led to concerns the path to economic recovery might still be bumpy. However, YTD equities remain in positive territory. In bond markets, yields rose as investors pondered if U.S. inflation news and other data pointing to a strong underlying economy might result in Fed interest rates having to stay higher for longer.
  • Earnings season for Canada’s largest banks started with several posting quarterly results during February. Market reception was mixed, but the actual reported figures were overall quite resilient.
  • There were several positive Canadian and U.S. economic indicators.
  • Job gains on both sides of the border exceeded expectations, and retail sales rose. U.S. GDP grew a respectable 2.7%.
  • There was promising economic news from the U.K. and the eurozone as surveys of manufacturers, and the services sector revealed a pick-up in activity and an easing of supply chain problems.
  • An academic, Kazuo Ueda, was named the new Bank of Japan head over existing deputy governors, potentially indicating a change in the bank’s near-zero rate policy which could impact global bonds.
  • Based on the March 8th announcement, Fed chair Powell indicated higher rate hikes might be needed to get inflation under
    control. There is a higher probability of a 0.50% rate hike on March 22nd than before.
  • Canadian inflation slowed from 6.3% to 5.9%. However, mortgage interest costs continued rising, and there were higher prices at the gas pumps, showing the path to a more acceptable level of inflation is not a straight line. Bank of Canada governor Macklem said last month interest rates would now be on hold to assess the effects of hiking so far.

How does this affect my investments?

Economic indicators such as employment, consumer spending and business sentiment have revealed more robust activity than anticipated at the outset of 2023, despite central bank rate hiking. However, this strength and declining inflation have a mixed impact. While it potentially looks good for company earnings and performance, it will likely slow the cooling of inflation and result in higher interest rates for longer. We believe this explains the return of volatility and rising yields last month.

Regardless of where we are in the market cycle, a disciplined investing approach and staying focused on your long-term goals is crucial. This strategy helps you keep your emotions out of investing, typically buying high and selling low, as many investors do. Ongoing monitoring and reviewing of your portfolio also ensure it remains on track. A well-diversified portfolio reduces risk as well.

We are here to help you achieve your financial goals. Should you have any questions, please do not hesitate to contact your NPW Advisor.

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