"A goal without a plan is just a wish." - Antoine de Saint-Exupery
Last week's market recap:
- The S&P 500 closed the week up 1.47%. Year-to-date the index is up 2.41%
- NASDAQ closed the week up 4.44%. YTD the index is up 11.36%
- U.S. Aggregate Bond index was up 1.43% for the week. YTD the index is up 2.90%
- 10-Year Treasury Rate decreased, ending the week at 3.39% down from 3.70% the prior week.
- Fed Funds Target rate is 4.75%
- The 1-Year Treasury is yielding 4.34%
- A 6 Month Treasury is yielding 4.80%
The week ahead:
- Fed Meeting: Fed Funds Futures are currently showing a 68% chance of a 25bp rate hike.
- February Home Sales
3 takeaways from last week’s regional bank collapse:
- Cracks have emerged within Regional Banks, but this doesn’t look like a repeat of 2008. This looks like poor risk management exposed by an extremely aggressive interest rate environment. Big Banks have much stronger balance sheets and are held to stricter capital standards vs Regional Banks. The big banks will probably get bigger as a result of this turmoil.
- The focus is shifting from “Inflation” to “Financial Stability.” The Fed will watch for risks and this may mean a pause in rate hikes sooner than previously expected.
- The bond market is signaling that the Fed is being too aggressive. Right now, the 2-year Treasury has a lower yield (by almost 1%!) vs the Fed Funds rate. This usually means we’re at or near the end of the hiking cycle.
Style and Sector Comments:
Last week was a volatile ride, as markets digested Regional Bank collapses, the government’s response, and a potential spill over into more banks.
- Large cap stocks outperformed small cap. This can partially be explained by small cap stocks having a larger exposure to financials, especially regional banks.
- Energy stocks underperformed. This is partially explained by an increased fear of recession and slowing global demand.
- Growth stocks outperformed value. This is due to growth’s lower exposure to financials, as well as interest rates softened. Growth tends to do well as interest rate expectations go lower.
- Fixed Income performed well as lower rates means higher bond prices. Long-term bonds have also helped minimize the recent volatility.
Investors should look past short-term volatility. While we acknowledge uncertainty and higher interest rates can pose challenges, long-term goals should drive investment decisions.
Source: BlackRock *
As always, let us know if you have any questions.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
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