Andrew Ulvestad, AAMS®
Wealth Advisor

After a weak February, markets rallied in March. U.S. markets were up by low single digits, while bond markets were in the same range. International markets also showed modest gains, with developed markets about the same as the U.S. and emerging markets doing slightly better. This was a stronger start to 2023 than most had
expected, and it may signal how the rest of the year will play out.

The US economy remained resilient, driven by consumer spending. While consumers are shifting spending from goods to services, overall spending continues at a healthy clip. But three factors—dwindling excess savings, higher interest rates and softening job creation— should curb growth soon.

In the short term, the economy may  xperience slower growth, and markets could struggle given increased risks to earnings growth. The second quarter may be tougher for markets than the start of the year. At the same time, as we look further forward, a strong first quarter has historically been a positive sign for the year as a whole.

We can reasonably expect more volatility in the short term, but the longer-term picture remains. The progress on inflation drove the gains during the first quarter. While it is still too high, it is well below where it started the year. With the Fed having hiked rates at a fast pace, markets are now convinced that inflation will come under control, as the benchmark yield on the 10-year U.S. Treasury dropped significantly in March.

Equity markets want the Fed and inflation to get off of their cloud. Why? Because equities tend to rally when the Fed ends its tightening cycle, inflation decelerates, and interest rates fall. Assuming the Fed doesn’t overtighten and take the economy into a severe recession, S&P 500 earnings should remain solid.

If anything, the economy’s better-than-expected start this year gives us more confidence in the upside potential. A weaker dollar, quickly improving supply chains, and easing commodity and labor costs should help support margins. The current decline in equities has likely already priced in a mild recession. When we finally get to the recession, sentiment should turn more positive— as markets anticipate coming out of it.


Duration measures a bond’s price sensitivity to interest rate changes.

During our Investment Committee Meeting in April, we discussed these economic and market themes and analyzed our strategies in detail. Based on our outlook and anticipation that rate hikes will slow or stop, we believe it may be prudent to keep fixed income duration low. While we have a more favorable outlook on value currently, we anticipate that to shift to a more neutral outlook of growth and value as we try to best position ourselves for both the short and long term.

As always, thank you for your continued trust. Market corrections – even recessions – are part of normal  market cycles, but it’s perfectly natural to be unnerved. Stay focused on your personal goals, don’t get overwhelmed by media hype, and remember we’re here to help. Contact us if you have any questions or would  like to review your plan.

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This content is for general information only and is not intended to provide specific advice, an endorsement, or  recommendations for any individual. Past performance is no guarantee of future results. Investing involves risk,  including possible loss of principal. No strategy assures success or protects against loss. To determine what is appropriate for you, consult a qualified professional.