Market Update Mar 2023 – January Speaks for the Year?!?!


Moving into March of 2023, the muddied outlook for the global economy persists.  Whatever paradigm an investor believes today, they can seemingly find a narrative/data point supporting their outlook or refuting another.  But the capital markets are the final arbiter, and equity markets continue the fight to further the sloppy uptrend in place since October 2022. 

If the equity markets truly “climb a wall of worry”, the uptrend makes sense as there is no shortage of economic and capital market worries.  In the U.S., the wall of worry continues to be headlined by the Federal Reserve’s dual mandate of “maximum employment and price stability”.  Investors see the importance of price stability (the measuring stick of inflation) and how it has crept into many aspects of daily life and is disrupting many different parts of the economy.  But along with the challenge of price stability is the equally important mandate of maximum employment, which has proven to be tricky and a condition most investors are not familiar with. 

Certain industries have widely needed to increase wages in order to add necessary employees.  This scarcity of workers implies tight labor markets, i.e., too few available new candidates.  That seems to sound something like the Fed’s “full employment” mandate.  But full employment with still more workers needed?  Raise compensation and they will come but asking for higher wages.  And this, in turn, can add to the risk of price instability. 

Despite the pressures of inflationary concerns, the capital markets are telling us that all is not lost.  Yes, risks remain, but the prevailing message from the capital markets is one of cautious optimism as signaled by the equity market rebound over the prior five months.  Recent gains have followed a repricing of the S&P 500 Index of over 25% in 2022.  Yet, despite this volatility the five-year annualized return for the S&P 500 Index was 9.8% through February 28, 2023, less than that of the long-term 50-year average of the Index and certainly not expensive.

Rather than trying to guess what’s next, we’d prefer to look at market tendencies in certain conditions relevant to those of today.  Ned Davis Research has provided the accompanying comments and chart from Ed Clissold, NDR’s Chief US Strategist, regarding market tendencies following strong January performance in January.

“The table below shows years when the S&P 500 Index gained more than 5% in January since 1950. The message for the rest of the year is bullish, with the index rising 12 out of 14 times by a median of 17.4% in February-December.”

“Down Februarys after big up Januarys have been the exception, but they have not usually spelled doom for the rest of the year. In the four cases when it was up 5% in January but down in February, the S&P 500 rose three times by a median of 13.6%, only slightly worse than the median of 14.4% March – December after all 5%+ Januarys.  Investors can be forgiven if the stat does not feel right. The one down case was in 2018.”



Chief Investment Officer



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