Travel expenses are leading category of consumer spending
A recent report by Consumer Signals found travel expenses are the leading category of consumer spending in the first quarter of 2023 with spending amounts increasing by 34.5%. (Unsplash photo / Benjamin Voros)

June 19, 2023

First quarter market data is in — what we can learn from it

By: Andy Craske

All FUMF Funds — the Foundation’s investment funds for churches — outperformed the benchmark in the first quarter of 2023.
All FUMF Funds — the Foundation’s investment funds for churches — outperformed the benchmark in the first quarter of 2023.

Andy Craske, the foundation’s vice president of loans and investments, shares valuable insights into the 2023 market thus far. The information should be useful to FUMF Funds account holders, or anyone looking to know the state of the market right now.

The economy’s forward path has become even more complicated with recent high-profile but isolated bank failures accentuating the impact of rising rates.

While the Federal Reserve remains committed to taming inflation, it must also consider the lagged impact of prior tightening actions.

Stricter regulation and tighter lending conditions could compound the effect of its restrictive monetary policy and further slow the economy.

The wide range of potential outcomes and an uncertain policy environment limit the ability to create a singular forecast with confidence. Investors should remain vigilant, diversified and prepared for ongoing volatility.

Factors helping the market

Consumer Goods Inflation Easing

  • The cost of key consumer goods, like food, gas, and housing, is gradually abating.
  • Reduced logistic pressures and the Chinese economic reopening have improved supply-side capacity.
  • Warmer weather, conservation and the use of energy reserves have benefited oil and gas prices.
  • A wave of new supply has tempered rent growth.

Resilient Labor Market and Consumer Spending

  • While wage pressures have eased, job growth remains robust. A stronger labor market provides greater household confidence, supporting consumer spending across goods and services.

Traditional Diversification Benefits Return

  • 2022’s highly unusual environment made diversification an ineffective tool.
  • Supported by a higher risk-free rate, the new year has shown hints of more normal diversification relationships between asset classes, with stock and bond prices reacting differently to economic data.

Factors hurting the market

The Fed Conflict

  • Although inflation remains elevated, prices have descended. The Fed now faces the task of achieving price stability while avoiding strain on the financial system.

Financial System in Turmoil

  • Regional and community banks risk losing cash deposits to the perceived safety of larger institutions. Such moves may lead to tighter lending conditions across several economic sectors.

Earnings at Risk

  • Despite cost-cutting, certain sectors could see squeezed margins. Financial firms may see tighter regulation and lower net interest margins, while a mild winter and cost inflation could create headwinds for energy companies.

Debt-Ceiling Deadlock

  • To avoid the consequences of a default, Congress needs to raise the debt ceiling by mid-summer.
  • This debt-ceiling compromise must be struck between polarized parties with thin margins, raising the odds of political fireworks

Key observations on recent trends

After a very strong start to 2023, the first quarter ended on a high note despite a rapid-fire array of troubling news. 

In early March, two large banks failed, and policymakers stepped in to keep isolated problems from becoming a systemic crisis. Despite the headlines, the stock and bond markets were surprisingly calm.

  • In the U.S., large-cap stocks outperformed their small-cap counterparts. Growth-oriented stocks outperformed value-oriented.  The top sectors were Technology, Communication Services and Consumer Discretionary.
  • The financial sector faced understandably stiff headwinds, and investors reacted to banking sector news by rotating back to the comfort of mega-cap technology companies with ample cash flows.
  • Skeptical of future Fed actions, bond investors drove prices higher as yields slipped lower.
  • Outside the U.S., international developed and emerging markets saw modest but steady gains. The post-pandemic reopening of China, stabilizing energy prices across Europe, and a weakening U.S. dollar contributed.
  • Real estate posted a modest gain for the quarter, although many of the same challenges of last year remain as headwinds.

The only standout performer of 2022, commodities, was the only major asset class in negative territory for the first quarter of 2023 as oil prices slipped.

Andy Craske is the foundation’s vice president of loans and investments.

FUMF Funds are investments designed to help churches make their resources go further.

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