The first quarter of 2023 is over and despite lingering speed bumps US stocks delivered a solid performance.
The S&P 500 (SPY) gained 3.5% in March for a total gain of 6.5% in the first quarter.
The NASDAQ (IXIC) gained 6.7% in March, bringing its first-quarter gain to 17.6%. That was the largest quarterly gain since the second quarter of 2020 when stocks rebounded from COVID.
International markets were on the rebound too – the Vanguard Global Stock Market (VT) was up 6.8% in the first quarter.
*chart from tradingview.com
Why Did Stocks Have a Good Quarter?
I see two primary reasons stocks had a good quarter.
Stocks were down a lot in 2022: The S&P 500 fell 20% and the NASDAQ was down 34%. After that big decline, stocks were oversold and many investors used that as a chance to buy low in the first quarter of 2023.
Inflation continues to improve: Here are some more details from CNBC.
“An inflation gauge the Federal Reserve follows closely rose slightly less than anticipated in February, providing some hope that interest rate hikes are helping ease price increases.
The personal consumption expenditures price index excluding food and energy increased 0.3% for the month, the Commerce Department reported Friday. That was below the 0.4% Dow Jones estimate and lower than the 0.5% January increase.
On a 12-month basis, core PCE increased 4.6%, a slight deceleration from the level in January.”
I’m Expecting More Gains this Year
As always stocks have lingering speed bumps to worry about. However I am expecting more gains this year.
US stocks have been in a bear market for 15 months: The average bear market length is 388 days or about a year. This bear market is long in the tooth by historical standards.
Extreme bearish sentiment: After a rough 2022 ‘everyone’ was bearish going into 2023. When sentiment reaches such an extreme level it actually becomes a ‘reverse indicator’, meaning the opposite will probably happen. For example, when ‘everyone’ is bullish on stocks, it usually means the top is in because there’s no one left to buy. Conversely, when ‘everyone’ is bearish, there is no one left to sell, and the bottom is usually in. Learn more about sentiment in the link below.
AAII Sentiment Survey: Pessimism Above Average for 6th Consecutive Week
Record $5.2 trillion in money market funds: with investors nervous about 2023, many pulled money out of stocks and put that cash into safer money market funds. That shift sent money market funds to a new record of $5 trillion. With stocks stabilizing, a lot of that capital should be working its way back into stocks in the next few months.
Assets in Money Market Funds hit a Record $5.2 Trillion
Potential rate cuts in 2023 and 2024: Interest rates are up huge in the last 12 months. However the market is now predicting rate cuts in 2023 and 2024 and that is already being priced into stocks.
You can see how stocks are stabilizing in the chart below of the S&P 500 since just before COVID. I drew the blue arrow to demonstrate how I think this year will unfold.
*chart from tradingview.com
What Should We Expect Looking Forward?
I am expecting to see more volatility. However stocks continue to show signs of stability and strength – and they are well on their way to having a solid year.
The next big event for stocks is first-quarter earnings, starting next week and lasting for a few weeks. First-quarter earnings will give us an important update on the health of corporate earnings. If results and forecasts come in above expectations, I expect it to be another catalyst for stocks.
I’ll be back with another update next week – have a great day!
Disclaimer: This is not investment advice. This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
