Following a brutal 2022, especially in the tech sector, stocks and bonds posted gains during the first quarter of 2023.
It wasn’t a smooth ride as along the way we’ve seen inflation continue to rise, another Federal Reserve rate hike, and the banking sector hit by a crisis.
Today, we take a look at Q1 2023 and share market trends you should know for the months ahead.
First quarter rollercoaster
Q1 2023 was a quarter of good fortune for many markets; traders and investors pumped millions into tech giants, leading to huge price gains from stocks that were battered in 2022.
The start of 2023 saw a split between the stock and bond markets regarding economic outlook. During Q1, company stocks have seen little difference in the outlook for the economy or corporate profits despite the danger of the banking crisis. Bond yields however have been crashing, highlighting concerns about a potential recession in 2023.
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One of the most bizarre incidents to hit the global economy has been the shift from inflation to a liquidity crisis among regional banks. It began with the collapse of Silicon Valley Bank on March 9 followed by the bailout of financial institution Credit Suisse.
Traders and investors had warned that ongoing Fed’s interest-rate hikes, to combat rising inflation, would hurt the economy. The banking crisis may be the first big warning sign of worse on the way.
Investors and financial institutions are watching and waiting to see how much of an effect the banking crisis will have on the economy.
One major piece of good news is that the Fed believes it doesn’t have to raise rates as high as it has over the past year. A slowing rate of hikes has provided support for the stock market.
Stock Market Performance Q1
For the first three months of 2023, stocks have moved in tandem with expectations of Fed policy.
Stocks gained 6.8% in January, dropped 2.3% in February, and were up 2.3% in March.
US stocks, however, ended Q1 in bear-territory following the banking crisis; The US stock market is down 13.5% from its last record-high set on Jan 3, 2022.
Interestingly, the first quarter saw a reversal of the trends during Q1, namely the rise of the tech sector.
Technology and communication stocks, which crashed in 2022, raised the market during Q1. The energy sector, which soared in 2022 due to the start of the Ukraine-Russia war, has lagged in the first three months of 2023.
Major tech stocks such as Apple are up more than 27% for the Q1 with computer graphics specialist, Nvidia, gaining an incredible 90%.
Facebook’s parent company, Meta Platforms META, rose 76% while Google’s parent company, Alphabet, gained 17% in Q1.
In the Forex market, after a huge rally in 2022, the US dollar has had a mixed performance in 2023. The USD started the year on a weak note, rallied in February, then dropped on March 9. The USD was particularly hit hard by the collapse of Silicon Valley Bank.
The Euro strengthened in Q1 despite the European Central Bank raising interest rates.
Commodity Market – Mixed signals
The commodity market saw mixed performance during Q1. Oil futures dropped due to concerns about the health of the US economy. It’s easy to see why – high inflation causes price hikes which result in less money spent by consumers. For the oil market this means, fewer travelers and fewer imports, so oil demand drops.
Interestingly, copper prices have risen during the first quarter. Copper is a good indicator of a healthy global economy, as it is one of the most common materials for products. Copper futures ended Q1 up nearly 9%, which analysts believe is a sign of increased global productivity.
Cryptocurrency – Bitcoin on the rise
Bitcoin and rival Ethereum, each ended Q1 up roughly 50%. It’s a major reversal from levels seen a year ago.
The gains in cryptocurrency come amid the collapse of crypto-exchange FTX, the collapse of crypto-bank Silvergate Capital, and the bankruptcy filing of cryptocurrency lender Genesis.
Following the end of SVB, Bitcoin traded above $28,000 for the first time since June 2022. This was driven by investors who turned to cryptocurrency as an alternative to struggling traditional banks.
What will happen to markets in the months to come? Stock market analysts are looking at six-to-nine months into the future.
We could see a mild recession later in 2023 before a lessening of inflation and the hope that the banking crisis will be contained.
The two major wild cards that could affect the markets are the ongoing war in Ukraine and rising international tensions between the US.
If some unexpected incident occurs and tensions further escalate, then the market will drastically shift. A war between China and Taiwan will be disastrous for Asian trade.
High-interest rates and rising inflation will continue to dominate headlines in the coming months.
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