Quarterly Review and Outlook - April 2023

Dear Clients and Friends,

The first day of spring is one thing, and the first spring day is another.
The difference between them is sometimes great.
~ American author Henry Van Dyke

If you were a financial market bear who went into hibernation last Fall and sauntered out of your cave just one week ago, you might think you had woken in Pamplona for an economic running of the bulls. Rubbing the long winter’s nap from your eyes, you’d notice the S&P 500 index has risen over 15% since last October’s depths, with almost half that gain since the start of the new year. Perhaps just as startling, the US Aggregate Bond Index, which turned in its worst performance ever last year, has recovered more than 3% since the beginning of 2023.[1]

Many investors view the financial markets as indicators of overall economic health. Bear-market selloffs, as experienced in 2022, may be suggestive of bleak economic times ahead, while a surging bull market might forecast sunnier days to come.  “Surely then,” says the grumpy bear, “Spring must be in full bloom!”

Alas, as we’ve heard others opine, the National Park Service does a much better job forecasting peak  Tidal Basin cherry blossoms than the stock market does forecasting the economy, and stocks are often an unreliable leading economic indicator. For instance, the US economy remained on solid ground for several years after the Crash of 1987, yet suffered through the Great Financial Crisis which began soon after the market peaked in late 2007. If you are putting together a summer beach reading list, we’ll suggest adding statistician Nate Silver’s book “The Signal and the Noise: Why So Many Predictions Fail - but Some Don't” for insightful thoughts on both weather forecasting and financial market analysis.

Evermay’s outlook for both the economy and the financial markets remains cautiously optimistic for the following reasons:

  • The recent turmoil in the banking industry, which we commented on via email last month (and which can also be viewed on our website here: https://www.evermaywealth.com/newsroom/volatility-in-the-banking-sector-evermays-view,) may cause the Fed to slow or even end its rate hike cycle sooner than anticipated.
  • A gradual drift lower in reported inflation numbers helps support this view of slower rate hikes, although some inflationary pressures remain.[2]
  • Despite an upswing in reported layoffs, new hiring remains intact.[3], [4]
  • Earnings expectations for S&P 500 companies have moderated somewhat since the start of the year, but remain within a few percentage points of all-time high levels.[5], [6]

One new concern since last year is that the issues facing the banks (chiefly, deposits leaving for higher-yielding opportunities, and secondarily their possible exposure to commercial real estate loans) could lead to a credit contraction, in turn leading to slower economic growth or even recession. This is certainly something we are keeping an eye on.

The important thing to keep in mind when looking ahead is that there are uncertainties to any outlook and surprises may happen, in the markets and in our personal and professional lives. As always, we encourage you to reach out at any time to discuss your portfolio to ensure your mix of assets is appropriate and aligned with your financial goals.

With best wishes for the Spring season,

Mitch Schlesinger
Chief Investment Strategist



[1] Data as of 3/31/2023

[2] US Bureau of Labor Statistics, 3/20/2023, “CPI up 0.4 percent over the month, 6.0 percent over the year, in February 2023.”

[3] Reuters, 3/9/2023, “US job openings stay elevated as labor market remains tight.”

[4] Bloomberg, 3/10/2023, “US Payrolls Top Estimates, Wages Cool in Mixed Signal for Fed.”

[5] FactSet, 3/31/2023, Earnings Insight

[6] Yardeni Research, 4/3/2023, YRI S&P 500 Earnings Forecast


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