Market Commentary Q1 | 2023
Market narratives and asset prices fluctuated throughout the 1st quarter as market participants were forced to adjust to a rapidly shifting investment landscape. In January, risk assets rallied on the idea of an immaculate disinflation characterized by resilient global growth, falling inflation, and easier monetary policy. In February, that dynamic flipped on its head as markets priced in more central bank tightening as economic growth proved more resilient than expected. Capping off an already tumultuous quarter, the failure of Silicon Valley Bank in mid-March created a banking crisis that required considerable central bank intervention to prevent broader financial contagion. As a result, the market implied probability of a recession over the next 12 months remains increased from an already elevated level. However, global economic activity has been resilient, and an imminent recession is far from a foregone conclusion. Despite prevailing headwinds, both global equity and bond markets posted positive returns during the quarter. Investors must now incorporate the implications of the banking crisis into their expectations for economic growth, inflation, and the path of monetary policy. As such, markets are likely to remain volatile as long as elevated uncertainty persists.