The Financial Quarterly

1st Quarter 2023

Fran Gillis, AIF®, QPFC, PPC
https://www.401kextra.com/
401k Extra LLC
(970) 225-2001

Markets were tremendously volatile in the first quarter, battered by interest rates, recession fears, and bank failures, but mounted a powerful comeback in March. Let's take a look at what happened and what might lie ahead.1

Looking Back

How Did Markets Perform Last Quarter?

S&P 500

7.0

The broader U.S. market grew strongly in Q1.1

NASDAQ

16.8

The tech-focused NASDAQ rocketed back to deliver its strongest quarter since 2020.1

DOW 30

0.4

The blue-chip stock index performed worst out of the three majors but grew slightly last quarter.1

Looking Ahead

What Could We See Six to Nine Months Ahead?

U.S. Economic Outlook

Negative Positive

Risks: Data suggests the economy is slowing down, and a recession might be in the forecast.2 Opportunities: A recession still does not appear imminent, and a soft landing might still be achievable without a severe economic slowdown.3

Equity Outlook

Negative Positive

Risks: Higher interest rates, economic worries, and the banking crisis are likely to weigh on markets.
Opportunities: However, a Fed pause and better-than-expected data could boost stocks.4

Consumer Sentiment

Negative Positive

Risks: Inflation, layoffs, and higher interest rates may dent consumer spending.2
Opportunities: However, consumer confidence actually strengthened in March, and Americans may retain their optimism in the months ahead.5

Monetary Policy

Negative Positive

Risks: A continuation of aggressive interest rate hikes could trigger more bank failures and even a recession.
Opportunities: Pausing rate hikes when inflation is on the right track could increase confidence and achieve a soft landing without a recession.3

Geopolitical Risk

Negative Positive

Risks: The war in Ukraine appears far from peace and tensions with China are elevated, potentially creating more conflict this year. Opportunities: Peace between Russia and Ukraine could ease geopolitical strains.6

Inflation

Negative Positive

Risks: Inflation may be “sticky” and persistent, keeping prices high and the Fed on a continued rate hiking path.7
Opportunities: Inflation could be past its peak, giving the Fed room to pause rate hikes.8

"Q2 is likely to be rocky, but the economy could show resilience."

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Bottom Line

Key Takeaways for Savvy Investors

What’s our big takeaway as we enter the second quarter of 2023?

The economy is showing resilience but plenty of risks are on the horizon.

While a recession doesn’t seem to be on our doorstep, cracks are starting to show in some areas of the economy and growth may be cooling off.2

That’s not a surprise given the Fed’s aggressive interest rate program.

However, there are some bright spots to consider as well:9

The jobs market remains strong in many sectors.

Inflation looks to have peaked in 2022.

Will we experience a recession in 2023?

Nothing is certain, but it seems increasingly possible we'll see at least a shallow recession this year.

More indicators are turning from green to yellow, and recession warning signs are flashing in bond markets.10,11

However, probabilities are not certainties. The economy could still avoid a recession. Or, if one comes, it could be shallow and short or be a “rolling recession” that only affects a few sectors of the economy at a time.12

Bottom line: we’re watching the data, staying flexible, and looking for opportunities amid the uncertainty.

Questions? Please reach out. I'd be happy to chat.

Fran Gillis, AIF®, QPFC, PPC
401k Extra LLC
(970) 225-2001
connect@401kextra.com