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Good was Bad, Bad was Good, The Consensus was Wrong

The first quarter of 2023 was strange indeed. Usually, good economic news is greeted positively by the stock market, yet not this time. Reports of low unemployment and rising GDP were initially greeted with a negative response. The Federal Reserve raised interest rates to bring inflation under control; therefore strong economic data was viewed as adding to the inflation problem. Good news was bad. The reverse was also true. Any signs of economic weakness were greeted positively, with hope that inflation would slow, and the Fed would curtail interest rate increases, reducing the probability of future economic recession. Bad news was good.

Adding to the market volatility, the Fed dealt with a banking crisis as two regional banks, Signature Bank and Silicon Valley Bank, experienced runs on their deposits. Fortunately, the Fed provided liquidity and guaranteed all deposits at the two banks. No depositors experienced losses. Most pundits and market forecasters were bearish during the quarter. One only had to turn on the television or pick up a newspaper to hear or read the fearful stock market predictions. However, the S&P 500 Stock Index rose 7% for the quarter, while the technology heavy NASDAQ Composite Index was up 17%. The consensus was wrong.

The events of the quarter reinforced our investment philosophy of not attempting to invest based on short-term economic or market predictions. We invest with a long view in well-managed companies with strong business franchises at reasonable valuations. We balance those investments with high quality bonds, maintaining asset allocation based on risk tolerance. We remain optimistic and comfortable with that investment strategy.


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