Quarterly Investment Review for Insurers & Risk Pools/JPAs:
Q1-2023

Global equities gained in Q1, buoyed by receding recession worries in developed markets. Gains came despite the collapse of Silicon Valley Bank, which caused significant volatility in bank shares. Within the bond market, investors sought the safety of U.S. Treasuries and high-quality investment grade while shunning bonds with lower credit ratings.

The short-lived market turbulence that followed the collapse of Silicon Valley Bank (SVB) in March did not prevent investor optimism leading US stocks higher over the quarter. The financial sector, perhaps surprisingly, largely shrugged off the events surrounding SVB as investors concluded that the systemic risk was minimal. It was stocks in the energy and healthcare sectors which lagged the most over the quarter. Tech stocks made some of the strongest gains.

The current median FOMC expectation for the annual core PCE inflation rate is now slightly higher for 2023 and 2024 versus its December projections. Other revisions suggest that the Fed believes below-trend growth and an increase in unemployment will be necessary to combat inflation, and that a soft landing is becoming less likely.

The futures markets, however, disagree with the Fed’s forecast for the federal funds rate later this year. Something always worth repeating – Don’t fight the Fed and stick to your long-term, enterprise-aligned strategic asset allocation.