(CNN) After a stormy 2022, US stocks gained in the first quarter of 2023 in a surprising display of strength despite a banking crisis, cryptocurrency collapse and uncertainty about what economic future.
What happened: Nothing about the performance in the first quarter was linear.
The broad-based S&P 500 sawsaw throughout the quarter, ending January on a high note before falling in February, rebounding in March and ultimately ending the quarter up about 7%.
The tech heavyweight Nasdaq has made a remarkable recovery, rising nearly 17% in its best quarterly gain since the fourth quarter of 2020.
Other highlights:
- Bond prices rose as investors bet the Federal Reserve would not raise rates as high as previously expected because of the banking crisis.
- Bitcoin gained ground as investors rushed to find safer alternatives to the banking system. The digital asset collapsed earlier in the quarter after several controversies hit the cryptocurrency market, including a case by the Commodity Futures Trading Commission against Binance that alleged it violated US trade laws and the collapse of crypto-friendly bank Silvergate.
- Oil prices ended the quarter down as the banking crisis fueled fears of long-term stress in the financial sector and a potential recession.
What’s next? Despite the strong performance in the first quarter, investors say it may be premature to celebrate a Fed victory against inflation.
Earlier this month, the collapse of three financial institutions – Silicon Valley Bank, Signature Bank and Credit Suisse – triggered a banking meltdown that sent markets reeling.
Wall Street largely ignored it all, however, with stocks recouping their losses — and then some — as investors began snapping up tech stocks, boosting the broader market in equity.
But that doesn’t mean inflation isn’t still a major factor driving the market.
Here’s what Wall Street experts say:
- “I just don’t think we can lower inflation without seeing pain in the market. So, in order for it to stabilize, I think first we might have to reverse some of these rallies,” said Liz Young, head of strategy to invest in SoFi Technologies.
- “We’re in the middle of this inflation control experiment,” said Scott Duba, chief investment officer at Prime Capital Investment Advisors. “Expect the unexpected.”
Next week’s spotlight: Employment data
The end of March means there’s a new month’s worth of economic releases for investors to parse, starting with a slew of jobs data this coming week.
Why that’s important: Despite the cheerful optimism on Wall Street, markets are still looking for signs of how the economy will improve. The Federal Reserve’s job has been made more complicated by the turmoil in the financial sector, as it is unclear whether the cracks in the financial sector will widen. Furthermore, the Fed has yet to beat inflation.
But lowering inflation is only one part of the Fed’s two mandates. The central bank’s objective is to achieve price stability while maintaining a minimum unemployment rate.
The labor market remains red hot, despite the Fed’s aggressive campaign. While that may sound like good news for the Fed, it’s a sign that the central bank needs to tighten the economy further. That’s because strong job and wage growth means companies are passing on higher labor costs to customers by raising the prices of their products and services.
Key reports to follow next week:
- The February JOLTS report, or the Job Openings and Labor Turnover Survey. The number of job openings fell in January, marking a slightly cooling but still hot labor market.
- The March ADP private-sector employment report. Private sector hiring and wage growth cooled slightly in February but remained warm.
- The work report for March. The US economy added 311,000 jobs in February, a pullback from January’s impressive figure but still warm. The central bank, and the markets, will be looking for signs in the March report that this is not just a trend. a trend It’s a trend that the job market is starting to buckle under pressure from the Fed.
Next time
Monday: March manufacturing PMI.
Tuesday: February JOLTS report.
Wednesday: The ADP private sector employment report.
Thursday: Unemployment claims and mortgage payments.
Friday: March jobs report and February consumer credit.
