After a difficult 2022, both stocks and bonds got off to a strong start in the new year. Softer-than-expected
data on inflation in January led to falling long-term interest rates and optimism that the Federal Reserve
rate-hiking cycle was coming to an end. This led the S&P 500 to post its second strongest return for the
month of January since the 1980’s. This favorable environment gave way to hotter inflationary readings in
February and turmoil in the banking industry in early March that culminated in the failure of three banks,
including two of the 50 largest banks in the country (Silicon Valley Bank and Signature Bank). Despite the
volatility that accompanied this banking turmoil, U.S. stocks, as measured by the S&P 500, finished the first
quarter up 7% (excluding dividends). One caveat is that this performance was not broad based; the top 20
stocks in the index accounted for almost all the market value increase in the quarter. Indeed, the Russell
2000 index, which has much higher exposure to smaller companies and the regional banking industry, was
only up 2.3%. U.S. bonds, as measured by the Bloomberg Barclays Aggregate Bond Index, were up 3% for
the quarter, supported by falling interest rates. Gold, as it often does during times of turmoil, turned in a
strong performance, rising 8% during the quarter.
