VIDEO: Stocks End Q1 on a High Note…Can it Last?

Welcome to my latest video presentation for Mind Over Markets. The article below is a condensed transcript; my video contains additional details and several charts.

In the first quarter of 2023, it didn’t pay to be a bear. The naysayers were proved wrong. When a handful of U.S.-based regional banks failed, the doomsters warned that we faced financial contagion. It didn’t happen. Federal regulators decisively stepped in and stemmed the damage.

We were told that inflation would keep rising in 2023; it’s actually falling. In fact, the dearth of liquidity caused by the banking crisis has, paradoxically, provided a tailwind for equities, because the dynamic points to a more dovish Federal Reserve over the near term.

The equity markets in the U.S. and overseas ended last week, and the first quarter of 2023, on a high note. Year to date at the market close on March 31, the main indices closed higher as follows: the Dow Jones Industrial Average +0.4%; the S&P 500 +7.0%; the NASDAQ +16.8%; and the MSCI EAFE +4.5%. The benchmark U.S. Treasury yield slipped 0.4% in the quarter.

Crude oil prices were volatile during the first quarter, ending down 5.7%, as economic worries whipsawed the oil patch. An economic slowdown, of course, would dampen demand for energy. But as economic prospects brighten, now might be the time for energy investors to buy on the dip.

Bank turmoil led to a significant pullback in the financial services sector, especially among regional banks, but also was an upward catalyst for the tech sector and other growth-oriented segments of the market.

High interest rates and growth stocks don’t play well together. Signals that the Fed will ease up on rates have been manna for tech shares, as you can see by the tech-heavy NASDAQ’s performance year to date.

The NASDAQ is now up 22% from its December lows. The NASDAQ 100, which represents the largest non-financial companies listed on the NASDAQ stock exchange, is now in a bull market.

In another auspicious sign, the S&P 500 has shot past its 200-day and 50-day moving averages. That means the bulls are in control. A rising moving average indicates that the security or index is in an uptrend, while a falling moving average indicates that it is in a downtrend.

The 11 S&P 500 sectors performed in the first quarter as follows, from top to bottom ranked: information technology (+21.5); communication services (+20.2%); consumer discretionary (+15.8%); materials (+3.8%); industrials (+3.0%); real estate (+1.0%); consumer staples (+0.2%); utilities (-4.0%); health care (-4.7%); energy (-5.6%); and financials (-6.0%).

The signs are favorable for the second quarter and beyond. The U.S. Bureau of Economic Analysis last Friday released the personal consumption expenditures (PCE) price index for February.

The PCE declined to 5.0% on a yearly basis in February from 5.3% in January. This reading came in lower than the market expectation of 5.3%. On a year-over-year basis, both headline and core PCE continue to trend lower.

What’s more, the CBOE Volatility Index (VIX), aka “fear index,” over the first quarter fell well below 20, which indicates further stabilization of the markets. When the VIX surpasses 20, you can expect greater than normal volatility over the next 30 days, and vice versa.

The week ahead…

Here are the salient economic reports scheduled for release in the coming days: ISM manufacturing and consumer spending (Monday); factory orders and job openings (Tuesday); ADP employment and ISM services (Wednesday); initial jobless claims (Thursday); and U.S. employment rate and average hourly wages (Friday).

Will the solid performance of the first quarter carry over into the second quarter? Probably, but I continue to counsel a somewhat cautious stance, with an overweight in “defensive growth” sectors such as health care and consumer staples.

But maybe you’re still spooked by market volatility. Global risks haven’t disappeared; they never do. But there’s a way to profit from uncertainty…and my colleague Jim Pearce can show you how.

Jim Pearce is chief investment strategist of our premium trading service Mayhem Trader. Jim has pinpointed one overlooked precious metal that could offer protection and massive profits, come hell or high water. Click here for details.

John Persinos is the editorial director of Investing Daily.

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