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I think the bulls made a lot of progress in the first quarter, but I think it’s too early to say they’re completely out of the woods. So we thought it would be a perfect time to take a look back at the first quarter of 2023 and see what factors will impact the S&500 and what we can learn from it to outperform in the coming weeks and months. For more information….
(Please enjoy this updated version of my weekly commentary, originally published on April 7.th2023 POWR Stocks Under $10 Newsletter).
The first quarter of 2023 is officially on the books. And was it strange? The only thing that everyone seems to be predicting correctly is that it was loaded with volatility.
To see exactly what experts expect from the first quarter and beyond, we’ve read through many reports from the beginning of the year.
What was predicted at the beginning of the year
1) We will have a recession in the first half of this year. Whether it’s a mild “soft landing” or a typical recession affecting every corner of the economy is debatable, but nearly all experts believe we’re probably in for some sort of recession in the first half of this year. I expected it to happen.
2) Sell, sell, sell. Nearly every voice in the room is bearish heading into 2023, with most forecasts for another recession in the first quarter. Many believed it would test the lows from October 2022 or make new lows at the beginning of the year before moving up in the second half of the year.
3) Set, hiiiiiii! (I know this is a lame joke, but I’m from Texas and football is one of the three major US exports, so I can make it.) Through 2023, or It will continue consistently as long as inflation remains high. Interestingly, many retail investors continued to trade the market as if the Fed would pause or even cut rates in his March.
4) Decrease in corporate profits for the year. This was also part of the recession equation. Still, the S&P 500 consensus analyst estimates (spy) net profit margin of 12.3%, above the estimated net profit margin of 12% in 2022. This means many experts were predicting a downward revision, which would put more pressure on the stock and lead to a deeper sell.
5) Growth stocks, tech stocks and cryptocurrencies crash. They were some of the worst performing groups in 2022 and most experts expected a similar outcome from the Fed, so it makes sense that these groups would continue to be at a disadvantage. I’m here. Many experts also suggested staying away from retail and leisure businesses due to their sensitivity to economic cycles.
6) A quality company is a safe buy. I’ve seen many market strategists recommend buying a sale in a quality company as they have the best chances of surviving (and potentially thriving) in a recession. of debt are most likely to decline as economic conditions deteriorate.
7) Tech and small-cap stocks will bounce back once they hit bottom (probably late fall or early 2024). While many analysts agreed that tech and small-cap stocks have performed poorly in the first six to nine months of the year, many believe the projected slowdown sets the stage for a strong recovery. I agree with you.
oh. The end of 2022 was very bearish. Personally, my biggest prediction for this year is that the Federal Reserve is still a big market driver, for better or worse. And to continue watching bulls and bears battle over the “secret special meaning” behind every word that comes out of Powell’s mouth.
What we actually saw in Q1
1) Buy, buy, buy! To the surprise of many investors, two major indices rose significantly in the first quarter. S&P 500 (spy) rose 7% in the first quarter, while the Nasdaq rose 20.5%. The Dow, which is made up of major blue chip stocks that analysts had recommended, had the worst performance, rising just 0.4%.
2) Growth stocks, tech and crypto were the clear winners. These companies were the top performers in the first quarter, even though many analysts said they should be avoided. The 5 best returns in the first quarter were…
FSLY (Small Cloud Service Provider) +116.8%
COIN (virtual currency exchange) +90.9%
NVDA (megacap semiconductor) +90.1%
META (megacap tech conglomerate aka Facebook) +76.1%
EVGO (small electric vehicle charging stations) +74.3%
Many of these high returns are likely due to forward-thinking investors focused on a moratorium on rate hikes (which benefits technology, growth, and risk-on stocks). . In 2022 they started out beaten.
3) The Federal Reserve… didn’t make things easier. It seemed dovish at first, then hawkish again, and then dovish again as the central bank decided to liberalize. data lead the way. Now, there’s nothing inherently wrong with that strategy. However, it makes it easy for the Fed to act like it intends to do one thing without actually committing to do it. As such, investors are vying for multiple rate hikes over the next nine months, or even more rate cuts. In short, Powell’s “agility” is a big contributor to market volatility. So far in 2023 he has his second rate hike of 25bps and his third rate hike is due in May.
4) The Federal Reserve… has bankrupted some banks. After nine consecutive rate hikes, the weekend of March 10 saw two major banks fail due to unrealized losses and liquidity problems in their bond portfolios. This left Mr. Powell and the Federal Reserve to deal with his twin problems of curbing chronically high inflation and strengthening the banking system. In a way, the banking crisis should do some of the Fed’s work for them. Tighter credit choices by banks could serve as a further anchor for the economy.
what’s next?
At this point, it doesn’t look like the two analysts are in complete agreement on anything, but here are some of the big predictions for the rest of the year…
1) The Fed will raise rates one more time in May and cut rates at the end of the year. This is based on the Fed’s ultimate interest rate target of around 5.1%. We are currently at about 4.9%, so another 25 bps increase brings us to the predicted rate. But Powell continues to make it clear they are not married to this level and we could see more rate hikes (or suspensions or even rate cuts) based on what the data show. I have.
2) Credit crunch due to bank influence. One of the reasons the Fed only hiked rates by 25 bps this March (rather than the 50 bps everyone originally expected) was because banks did some of the hard work. After the banking crisis, experts agree that most banks will start restricting who they lend to, making access to credit even more difficult. Like raising interest rates, this will help slow the economy and keep inflation down.
3) Be prepared for some kind of recession. Depending on who you talk to, it could be a technological recession with shrinking growth, but it won’t hurt as deeply as past recessions…or it could be a hard landing. The labor market has held up, but manufacturing activity has declined and the housing market has softened significantly. The yield curve is also inverting again, and the New York Fed’s recession model puts him at a 54.5% chance of a US recession within the next 12 months.
4) Higher quality companies are rewarded. Many experts say a recession looks inevitable at this point, but investors needn’t be put on the sidelines. Take this first quarter, for example. The outlook at the beginning of the year looked bearish, but anyone who was waiting to put their money to work missed the chance to make a profit.
It will be interesting (dare I say, is it fun?) to look back at these predictions three months from now and see what happens. What are your predictions for this year?
Are you buying quality or is your portfolio risk on? Do you think we’ll see another rate hike eventually or are you one of the many expecting a rate cut later this year? I’m always looking forward to hearing what you all think.
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all the best!
Margrave Meredith
StockNews Chief Growth Strategist
POWR Stocks Under $10 Newsletter Editor
SPY shares closed at $409.19 on Friday, up $1.59 (+0.39%). Year-to-date, SPY is up 7.41% on him, while the benchmark S&P 500 index rose 10% over the same period.
About the Author: Meredith Margrave
Meredith Margrave has been a prominent financial expert and market commentator for the past 20 years. she is currently Growth of POWR and POWR Stocks Under $10 Newsletter. Learn more about Meredith’s background, with links to her latest articles.
post Four key lessons learned from the stock market’s first quarter… first appeared StockNews.com