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Market Capital Management & Insurance Services

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2nd Quarter Market Outlook

| March 31, 2023

Well, the First Quarter of 2023 comes to an end today.  There has been a tremendous amount of news.  Inflation has come down but had some numbers which were higher than expected.  Earnings have held up better than expected.  We had a mini banking crisis.  The war in Ukraine continues.  And the Fed has raised rates twice. So how have the markets done through all this uncertainty?  As I write this the Dow Jones Industrial Average is down 19 points. The S&P 500 however, is up nearly 200 points or 4.8%.  The NASDAQ is up over 12%.  Interest rates have declined, as measured by the Ten-Year Treasury, from 3.79% to 3.51%.

So, what does the 2nd quarter hold in store?  I believe rates will fall further.  The economy will slow, and the inflation reports will be better. I believe the Federal Reserve will not raise rates again as they see a slowing economy.  I think people will worry about the earnings reports due out starting in mid-April but will be not as bad as expected. I believe the banking crisis will be put in the rear-view mirror.  And finally, I believe analysts will begin to say the Bear market is over.  

First up are earnings.  The reason I believe they will be ok is twofold.  First this Recession everyone is talking about has been forecast for the last nine months.  This has given companies time to prepare. We can see from the large cap tech companies have been getting leaner for months.  This, I believe, is why they have outperformed this year.  

Second, inflation reports will get better.  Housing and housing costs have been one of the major drivers of increase in inflation.  However, we all see housing prices have fallen.  Housing price reports tend to have a rather long delay in actually reaching the inflation reports. Last month was the first-time lower housing costs influenced the reports.  I expect this continue and actually be deflationary.  Again, this gives the Fed more cover to stop raising rates.

Third, the further we get away from the banking crisis the better it is for markets.  Just the fact more attention is being paid to the health of the banks is actually good news for the credit markets.

And finally, I believe the market rallies to the point analysts will say with confidence the lows back in late September 2022 are solid.  As analysts say this they will begin talking about "green shoots" and things which cause better earnings growth. 

All of us at Market Capital Management are here to help you feel comfortable with your investment choices.  So, call us with any questions you may have.  

The views stated in this letter are not necessarily the opinion of the broker/dealer and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.  Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.