March was an extraordinarily volatile month as the financial services sector came under significant pressure with the FDIC takeover of Silvergate Bank, Silicon Valley Bank and Signature Bank. The quick and decisive actions of financial regulators averted a potential banking crisis. The announcement of a new bank funding program coupled with an implicit guarantee by the FDIC on uninsured deposits restored confidence.

Later in the month, the Swiss regulatory authorities and Swiss central bank coordinated Credit Suisse’s takeover by UBS. Credit Suisse, the country’s second largest bank, had been in turmoil for years. The problems at Credit Suisse we not directly related to the problems of the banks mentioned in the first paragraph. A series of mismanagement over the last several years culminating with an US$8 billion loss of 2022 was the driver.

Interestingly, the Federal Reserve did not waiver in the plan to fight inflation. On March 22nd, the committee raised overnight rates an additional twenty-five basis points to a median of 4.875%

March CPI (Consumer Price Index) came in as forecasted as headline CPI printed at 6.00% YOY. This along with fears of financial stress contagion changed the markets view on future Fed rates increases. We frequently refer to the terminal rate or projected peak in the rate hike cycle. At the close of the month in February, that rate was 5.40%. March saw a radical change in direction. The peak is now forecast to be the current now and the market is now pricing in about 50 basis points of rate decreases by year end 2023. US Government 2-year notes peaked at 5.05% on March 8th. On March 31st, the yield was down to 4.06%.

It is not surprising US Treasury bonds performed well during the month as there was a flight to quality into safe assets. The overall bond market was also the beneficiary of lower projected rates as prices in fixed rate bonds increased.

It not surprising that financials were the worst performing sector during the month. The KBW regional bank index dropped over 20% in March. Technology and Communication Services notched gains of over 10%.

Detailed below is an S&P sector return table over the last 10 years. The annual performance changes are staggering. It validates our investment philosophy.

The events in the first quarter of this year show us how quickly tides can turn. History has taught us trying to time the market against a volatile backdrop is not an effective strategy. I believe a well-diversified portfolio that is frequently re-balanced to our client’s risk appetite provides the potential to achieve for long term capital appreciation.

As always if you have any questions feel free to reach out.

Best regards,
Tomoro Partners

This material contains the current opinions of the author but not necessarily those of The Guardian Life Insurance Company (Guardian), New York, NY or its subsidiaries and such opinions are subject to change without notice.

This material is intended for general public use and is for educational purposes only.  By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity.  Please contact a financial professional for guidance and information that is specific to your individual situation.  Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. The Hang Seng Index is a free float-adjusted market-capitalization-weighted stock-market index in Hong Kong. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Each company's security affects the index in proportion to its market value.  Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions Opinions expressed are those of the author and not necessarily those of Guardian or PAS. 2023-153835 Exp 4/25

Source Bloomberg, Nasdaq, Morningstar