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Asset Class Reports
Canterbury Review: First Quarter 2023

Markets Improve Amidst Cooling Inflation

  • In the first quarter, the U.S. equity market had a strong start, with technology stocks driving much of the market’s gains. In the second half, concerns around several large banks caused market declines. However, U.S. stocks managed to recover some of its losses towards the end of the quarter.

  • International developed equities and emerging markets (EM) equities also rose in the quarter despite rising interest rates and inflation concerns. Both developed and EM equities benefitted from a weaker U.S. dollar. Countries that performed well included Brazil, India, China, Germany, and France.

  • Amid elevated inflation, the Federal Reserve raised the key interest rate twice, 25 basis points in February and 25 basis points in March to a range between 4.75% - 5.00%. The FOMC considered skipping a rate increase at their March meeting given banking turmoil from the failures of Silicon Valley Bank and Signature Bank, but ultimately decided to follow through with an interest rate hike as stress quickly subsided.

  • The treasury yield curve increased on the front-end given the expected pace of interest rate hikes by the Fed, while the intermediate and long-end of the curve fell over the quarter. As a result, the yield curve between 2-year and 10-year maturities remained inverted. Investment grade (IG) spreads increased from 138 basis points (bps) to 145 bps over the quarter while high yield (HY) spreads narrowed from 479 bps to 458 bps.**

  • Inflation, measured by CPI, remained persistently elevated over the quarter but slowed down to a year-over-year rate of 5% in March. CPI excluding food and energy, generally viewed as sticky inflation or Core CPI, remained relatively stable at a year-over-year rate of 5.6%. Indicators used to measure U.S. economic activity such as the ISM Manufacturing and Non-Manufacturing indexes, continued to decline over the quarter. As a result, concerns of a slowing economy increased.

To view the first quarter reports, click on the links below: