Weekly Market Update

It was a volatile first quarter (Q1), but despite March witnessing the second and third largest bank failures in US history (SVB Financial and Signature Bank), the S&P 500 ended the month with strength, riding a three-week winning streak and registering its second consecutive quarterly return over 5%.  However, roughly 160% of the S&P 500’s year-to-date gains came from just nine stocks (Apple, Nvidia, Microsoft, Meta, Tesla, Amazon, Alphabet, Salesforce, and AMD per Susquehanna), while popular sectors heading into the year such as energy, utilities, and healthcare have stumbled.  As a result, market breadth has been unusually narrow, and investors remain justifiably nervous as the playbook for 2022 (buy defensive stocks and avoid tech) has notably underperformed in 2023.

Heading into April, investor sentiment remains unusually low, but seasonal trends are becoming quite favorable.  Since 1950, April is the second-best month for the S&P 500 and has risen in 17 of the last 18 pre-election years (per Carson Investment Research).  Furthermore, since WW2, there have been ten instances where full year S&P declines were followed by Q1 gains and all ten times the rest of the year finished positive (per Bespoke).  Last week, we highlighted how assets held in money market funds had ballooned to a record $5.1 trillion, so we are entering a seasonably strong period with record amounts of cash on the sidelines and negative sentiment unusually stretched (see chart below).  Perhaps such negativity is prudent, but market rallies typically feed on bearish sentiment.  For example, after the negative market expectation streaks ended in April 2009, February 2012, and January 2013, the S&P 500 rose on average almost 22% twelve months later.  Next week will be highlighted by multiple manufacturing and service data releases, as well as the March jobs report on Friday.  As long as markets do not get any major surprises, the setup for April is rather interesting.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

Thanks to our clients and friends who have referred business to us over the years.

Your endorsement has been the cornerstone of our growth and our greatest compliment.