April 5, 2023

Market Watch

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Market Health Indicator 

The Market Health Indicator (MHI) measures market health on a scale of 0 – 100, analyzing various market segments such as economics, technicals, and volatility. Higher scores indicate healthier market conditions.

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Have you heard of the new artificially intelligent Oreo? It’s one smart cookie…

Puns aside, the AI race has been heating up in recent months as tech behemoths have been rolling out their own versions of the technology.

As more companies join in, the advancements have been exponential. For example, an AI scored around the bottom 10% of a simulated bar exam, but before most people even knew the tech existed its next generation successor scored in the top 10% of test takers.

The rapid pace of increase has caused some concern though as critics fear developers are getting into an out of control scramble for further improvements without proper oversights in place.

Recently a group of over 1,000 AI experts signed an open letter asking developers to pause experiments for six months. However, other experts don’t believe pausing is the solution, as studies show AI could boost global productivity.

Fun Facts

  • German chocolate cake didn’t originate from Germany. It was named after a person, Sam German (American), who created a new type of baking chocolate in 1852.
  • A day on Venus is longer than a year on the planet. Due to its slow axis rotation, it takes 243 Earth days to spin once, but it only takes 225 Earth days to go around the sun.
  • Warm up your singing voices. April 11 is National Barbershop Quartet Day.
  • April is only the 5th wettest month of the year, despite the old adage “April showers bring May flowers.”

March Madness lived up to its name, and so did the basketball tournament…

It was a bumpy month for equity markets as uncertainties in the banking industry led to a handful of bank closures and a spike in volatility.

As investors digested concerns about the financial stability of the banking industry, major indices finished the month mixed. There was a wide divergence between large and small-cap stocks with the S&P 500 gaining 3.51% and the Russell 2000 dropping 4.98%. The tech-heavy Nasdaq 100 soared 9.46% on prospects of a Fed pivot while the more blue-chip Dow Jones Industrial Average rose only 1.89% as value sputtered.

While stocks in the US posted mixed results, international markets were modestly higher with gains of 2.65% for developed international stocks and 2.56% for emerging market stocks. There were some European banks caught up in the turmoil, but the slower path of rate hikes overseas compared to the US may have helped stave off further worries internationally.

The banking uncertainties spilled over to the bond markets as well, leading to an increase in  expectations for a near-term Fed pause. As future rate projections fell, bond yields followed with the 10-year Treasury yield declining from 3.92% to 3.48%. This provided a boost to bond prices, with the US aggregate bond market gaining 2.54% for the month. Despite some recent rate volatility, bonds have been acting more as a safe-haven again so far this year after a historically negative 2022.

Already a quarter of the way through the year, many asset classes remain positive in 2023, providing some reprieve from last year’s downward pressure. Even so, there have still been some ups and downs with many questions lingering around the health of the economy and potential recession risks. With market conditions seemingly changing month-to-month at the moment, having a plan in place can help provide clarity and direction, keeping the big picture in focus throughout the short-term noise.

Who had banking crisis on their board for March?

It was a whirlwind of a month for the industry as a couple of niche US banks (Silicon Valley Bank and Signature Bank) as well as a more globally integrated European bank (Credit Suisse) failed.

The immediate market reaction was understandably negative, but the lack of headlines to end the month seems to have calmed some nerves for now.

While volatility has cooled, the events of the past month raise many questions going forward. What’s going to happen with FDIC insurance? Should regional banks be held to tighter risk controls? Will the Fed pivot more quickly than originally anticipated? Are larger banks just going to eventually absorb smaller banks?

Regulators were able to step in quickly and nip the crisis in the bud for now, but the aftermath could result in industry-wide changes as the effects of March’s events are unpacked.

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