April 2023 | Monthly Economic Update
Markets ended a volatile but positive first quarter, with gains in technology offsetting weakness in banks. The quarter also saw a reversal in many of 2022’s underperformers.
Tip of the Month
You have a limited amount of time to amend a tax return; otherwise, the IRS will not accept it for a refund of tax. Generally, for a credit or refund, you must file an amended tax return within 3 years after the date you filed your original return or within 2 years after the date you paid the tax.
Developed international equities (MSCI EAFE) across Europe and Japan rose 8.6% and outperformed the US and emerging markets. The outperformance came as investors were surprised by better-than-expected economic growth, corporate earnings, as well as cheaper relative valuations. US equities (S&P 500) rose 7.5% despite the banking turmoil, given its larger weight in technology stocks and lower weight in financial (bank) stocks. Finally, emerging markets (MSCI EM) also gained 4%, led by China’s reopening.
US sector performance was uneven in the first quarter. Technology and its related sector enjoyed strong gains highlighting investors’ willingness to look beyond near-term challenges. The expectation that the Fed would need to cut interest rates to curtail the banking crisis sent the technology sector up 21.8% for the quarter, while economically sensitive sectors such as energy and financials suffered losses amid the banking turmoil and recession fears. Financials, the worst-performing sector, fell 5.6% for the quarter.
Across size, bigger stocks did better and within style growth trounced value. Large caps (S&P 500) rose by 7.5% and outperformed small caps (S&P 600), which only rose by 2.7%. This divergent performance can be attributed to the fact that the small-cap index has larger regional bank stock exposure and a lower weight of technology stocks. Finally, across style, Nasdaq, a heavy growth and technology-oriented index, gained 17%, while Dow Jones 30, a value-oriented index often synonymous with dividend payers, was up merely 0.8%.
Bonds recovered in the first quarter after suffering their worst year in history in 2022. Bond yields, which move in inverse to bond prices, fell as markets anticipated the Fed to pause and or cut rates following the banking debacle. US fixed income gained 3% for the quarter. Longer-dated treasury bonds fared the best, up 6.2%, while short treasury gained 1.1%. Lower quality bonds, such as high yield, were also surprisingly resilient and gained 3.6%.
Finally, across other asset classes, commodities fell, gold gained, and REIT stabilized. Oil prices fell 18.7% over concerns about the banking system leading to a recession, taking broad commodities 5.4% lower for the quarter. Gold, viewed as the ultimate safe haven asset, gained 8.1%. Lastly, REITs edged up 1.7%, supported by a slight improvement in mortgage rates.
The Monthly Riddle
I have branches but no fruit, trunk, or leaves. What am I?
LAST MONTH’S RIDDLE: While most English words can be pluralized by adding the letter S on the end, there is one word that can be pluralized just by the addition of the letter C. What is it?
ANSWER: A dice
This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation.
It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.
Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.
Bloomberg® and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, (collectively, “Bloomberg”) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies.