Weekly Market Update: March 24, 2023

Market Data as of Week Ending: 3/24/2023 unless noted otherwise

U.S. stock prices ended the week higher as the Fed remained resolute in its stance on fighting inflation and raised interest rates 0.25%, despite investor concerns in the banking industry. The trend of outperformance for the growth and size factors has been persistent for the past several weeks as growth stocks outperformed their value counterparts, and large companies outperformed their small and mid-sized peers. Nearly all major economic sectors ended the week with gains. Communication services, energy, materials, and information technology outperformed and were the best performing sectors. Sectors that are more sensitive to interest rates such as utilities, the only sector that was down, and real estate lagged. Developed foreign and emerging markets stocks delivered solid gains for the week and outperformed domestic equities.

U.S. Treasury yields remained volatile as investors absorbed new information from the Fed and recalibrated interest rate policy expectations for the rest of the year. The 2-year U.S. Treasury yield rose back above 4%, but following the Fed's decision, settled back and ended the week lower at 3.76%. The 10-year U.S. Treasury yield showed signs of a similar trend, advancing early in the week, but finished the week lower at 3.38%. Investment grade corporate bonds outperformed across the curve. High yield corporate bonds continued their trend of underperformance and lagged across the curve. Yields for investment grade corporate bonds and high yield bonds ended the week at 5.1% and 9.0%, respectively.

Investors were on edge leading up to the Fed’s policy rate decision on Wednesday as a rapid shift in expectations in the prior two weeks left some investors unsure if the Fed would continue increasing rates. In addition to the Fed’s policy decision, they revealed their updated Summary of Economic Projections (SEP). The Fed expects one more rate hike, and Chair Powell revealed that no cuts are anticipated through the end of this year. GDP growth for the year was lowered to 0.4%, the unemployment rate was lowered to 4.5%, and inflation expectations for headline and core have increased to 3.3% and 3.6%, respectively. It was a light week for economic data, but on the positive side, existing home sales increased for the first time in 12 months, and new home sales increased for the third consecutive month. S&P Global’s preliminary estimate for US PMI came in higher than expected at 53.3, a 10-month high, driven by strong results from the services sector and improving conditions in manufacturing. However, new orders have declined for six consecutive months in manufacturing. In Europe, the preliminary PMI from S&P Global showed a similar situation to the U.S. with a composite reading of 54.1, also a 10-month high, driven by growth in the services sector

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