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Weekly Economic Update - 3-20-2023

3/20/2023 brad

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Economic Update 3-20-2023 

  • Financial news was dominated by concerns over the viability of several U.S. banks, wavering between fear and relief during the week. Economic data included declines in retail sales and consumer sentiment, while housing starts gained sharply. A variety of other data, which included industrial production and regional manufacturing indexes, were mixed.
  • Equities fell back globally last week, along with concerns over banking system health and economic side effects prompted investors to move away from risk. Bonds benefitted from these flows, as interest rates fell sharply. Commodities were largely also down due to rising fears of recession.

U.S. stocks began the week on a sour note, with initial cheers over the SVB fix followed by concerns over wider bank balance sheet problems caused by the inverted yield curve (spreading to First Republic Bank, before a liquidity solution was found). Market sentiment moved back and forth by the day with concerns over other potential banks with similar issues, including systematically important European bank Credit Suisse. Debate continues over the possible path for the Fed this week—with odds continuing to waver between no move and a 0.25% hike, a 0.50% no longer in the running, and odds again rising for a rate cut by later 2023.

By sector, ‘growth’ stocks led the way with gains in communications, technology, and consumer discretionary. This is a group expected to benefit from lower interest rates, as well as is considered a bit of a buffer during slow growth periods, as well as just ‘not being’ financials. The more economically-sensitive ‘value’ group fell back, notably in energy, financials, and materials. Specifically, the regional bank segment (which is the group below the mega-cap money center banks) fell by upwards of -20% to -25%, depending on the index used.

This was lost in the focus on banking, but at the end of last week, the S&P 500’s index composition adjusted a bit, as happens every so often. In this case, ‘Data Processing & Outsourced Services’ (part of Technology) is being moved to Financials under the sub-group ‘Transaction & Payment Processing Services’. This affects eight companies, but most of the market cap is represented by Visa, Mastercard, PayPal, and Fiserv. While the size of Technology in the S&P will drop from about 27% to 24%, the size of Financials increases from around 12% to 14%. In other moves, a few human capital and payroll processing stocks are being moved from Technology to Industrials; and Target, Dollar General, and Dollar Tree are moving from Consumer Discretionary to Consumer Staples. The latter two moves don’t result in meaningful weighting changes, but reflect reassessments of company revenue drivers.

Foreign stocks fell back last week to a further degree than in the U.S. These were related to U.S. banking stress, but also local institution Credit Suisse, although not as large in market cap at this point, but remains an important counterparty for derivatives transactions. The ECB raised the key interest rate by 0.50% to 3.00%, on track with their own projections, but surprising some that assumed global banking concerns and recent liquidity aid to Credit Suisse might be a call for a slower pace or pause. Markets actually cheered the move, as it implied conditions in banking were contained and not prone to spread elsewhere through the financial system. Despite high inflation pressures in Europe, expectations for future rate hikes, though, have been trimmed a bit to just a few more quarter-percent moves to a terminal rate of around 3.50%—below that of the U.S. by at least a percent.

Bonds gained a decent amount of ground last week, as interest rates fell back sharply. This was in response to banking industry issues, which raised recession risks, and chances of the Fed getting to a lower terminal rate than expected just a week ago. Longer-maturity treasuries led the way, as they often do as investors seek a safe haven, although investment-grade corporates also performed positively, but less so as credit spreads widened. Senior bank loans lost ground for the week. Foreign developed market bonds gained, helped by a weaker dollar, with negative emerging market debt results. General patterns here were typical for such a week.

Commodities were mixed, with precious metals gaining over 6%, buoyed by a typical flight to safety move, while energy fell back sharply. Crude oil prices declined -13% last week to just under $67/barrel, with concerns over banking woes ultimately constraining credit, contributing to a possible recession in key markets, which depresses energy demand.

Period ending 3/17/2023

1 Week %





S&P 500






Russell 2000









Bloomberg U.S. Aggregate




U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.



















Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                   

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.