The first quarter of 2023 witnessed a volatile but profitable quarter that saw more rate hikes from central banks, a healthy earnings season with 75% of S&P 500 companies reported actual revenues above estimatesTop of Form and a mini-banking crisis triggered by the failure of Silicon Valley Bank.1
The S&P TSX60 finished the quarter with +3.2% and the Barclays Global Aggregate Bond index was up 3%2 offering a much-needed ballast following last year’s tough environment.
Volatility in our view will persist, in mid-March, investors got a preview of how this scenario could play out, when the collapse of Silicon Valley Bank, rescue of Signature Bank, and hasty takeover of Credit Suisse were accompanied by plummeting Treasury yields, widening yield spreads, and falling equity prices. By quarter-end, the crisis appeared to be averted: Fears about deposit flight had eased, the European Central Bank and Federal Reserve had both proceeded with their expected interest rate hikes, and most markets had strengthened. But this rally may be somewhat deceptive, as it was driven by a flight to quality. Seven large companies accounted for roughly 90% of the S&P 500 Index’s return in March.3
The banking turmoil remains significant because of the impact it could have on credit conditions and investor psychology. It’s likely that banks – which were curtailing their lending activity before the crisis – will seek to further reduce risk because of the recent stress as well as weakening economic fundamentals, the potential for further regulatory changes, and legacy issues related to overly aggressive lending in the years before 2022. This would effectively tighten financial conditions, even if the Federal Reserve slows the pace of interest rate hikes or pauses them entirely. Investors appeared to believe that when it came to the economy, bad news was good news because weak economic data made it more likely that the Fed would soon end its interest-rate-hiking cycle. The panic surrounding the SVB collapse appears to have shaken this belief and made investors recalibrate their macroeconomic expectations.
Looking ahead, analysts still expect earnings growth for the second half of 2023. For Q2 2023, analysts are projecting earnings decline of -5.7%. For Q3 2023 and Q4 2023, analysts are projecting earnings growth of 1.2% and 8.5%, respectively.4
As we focus on mitigating volatility, our rebalancing efforts take advantage of the market’s inefficiencies to help keep you on track. Helping you achieve your goals is at the center of our daily activities.
Penmore Wealth Management, iA Private Wealth
This information has been prepared by Roland Orban who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
- FactSet Research Systems Inc
- FactSet Research Systems Inc
Roland Orban, CIM, PFP, Investment Advisor
304-8800 Dufferin Street, Concord, ON L4K0C5
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