2022 certainly showed no mercy as global capital markets, both stocks and bonds, struggled to pull themselves out of negative territory. The perfect trifecta of rising interest rates, high inflation and the Russia/Ukraine war persisted into 2023 Q1 putting a cap on any sustained positive momentum. In fact, Fed tightening to fight inflation helped cause a minor banking crisis headlined by Silicon Valley Bank (SVB) in early March that seemed to ease as we closed out the quarter on a high note.
Perhaps surprisingly, we did see some positive returns during Q1 out of some of the broad capital market indices like the S&P 500 (IVV) and international developed markets (SCHF). But, those returns were certainly not broad-based and merely recovered with outsized Q1 returns some of the excess losses experienced during 2022 from the largest S&P component stocks like Apple, NVIDIA, Amazon, and Microsoft. In fact, almost all of the gains in Q1 from the S&P 500 came from the 15 largest component stocks.
As seen from the table below, the S&P 500 (IVV) index of large cap stocks, benefited mightily by the recovery in the large cap tech names highlighted above, generated a +7.44% total return during 2023 Q1. But, other diversifying equity sectors like small cap (SCHA, +3.86%), mid cap (SCHM, +3.79%) and REITs (SCHH, +1.76%) lagged, mostly due to the drawdown that resulted from the mini banking crisis that was thought to impact the financing needs of companies in those sectors. Even high-quality dividend-paying stocks (DVY, -1.95%) suffered since there was fear of a contagion into the high-quality banking/financial and recession-fearing energy sector.
To celebrate my 200th blog post back in February, I re-posted a blog about risk. In it, I said,
“I have written a lot about the importance of long term strategic investing, diversification, and risk management. I almost always close my blog posts with the caveat that market timing is impossible, except by luck, and it is always best to invest for the long term with a strategy that is consistent with your goals.”