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U.S. Equities Market Attributes March 2023

U.S. Equities Market Attributes February 2023

S&P Target Date Scorecard: Mid-Year 2022

iBoxx USD Asia Ex-Japan Monthly Commentary: February 2023

iBoxx Asian Local Currency Indices Monthly Commentary: February 2023

U.S. Equities Market Attributes March 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

Key Highlights


- The S&P 500® was up 3.51% in March, bringing its YTD return to 7.03%.
- The Dow Jones Industrial Average® rose 1.89% for the month and was up 0.38% YTD.
- The S&P MidCap 400® decreased 3.41% for the month, bringing its YTD return to 3.36%.
- The S&P SmallCap 600® was down 5.38% in March and had a YTD return of 2.12%.

U.S. Equities Market Attributes March 2023: Exhibit 1

Market Snapshot

One must always try to find a silver lining to a storm. The S&P 500's total return for March was 3.67%, but the breakdown was more revealing. The 3.67% gain would have been 4.81% excluding Financials' 9.55% decline (it cost the index 1.13%) and it would have been 0.70% excluding Information Technology's 10.93% gain (it added 2.97% to the index, with Microsoft and Apple adding 1.72% and negating Financials' decline). For the Q1 2023 YTD period, the S&P 500's total return was 7.50%, and without Information Technology's 21.82% YTD gain (it added 5.34% to the overall index, with Apple and Microsoft adding 2.71%), it would have been 2.71%.

The banking events were severe: SVB and Signature are gone, and First Republic was down 89% for March. Credit Suisse had USD 17 billion of bonds completely wiped out, and the images of a run on the bank will likely stay with the regionals and investors for years, as Washington comes up with a new and improved cure. Banking issues, at this point in time, do not appear to be systemic, but withdrawals may lead to more failures.

The three "issues" were separate. SVB seems to be a traditional risk/maturity issue, which appeared to be a management failure and now also appears to be a regulatory one. Signature appears to be a portfolio issue. Credit Suisse has been having issues for years, with a UBS merger also discussed over the years. The current situation resulted in the arranged wedding (Deutsche Bank is still in motion).

I'm not belittling the event or the damage, but the market seems to have, and it has moved back to its issues—consumer spending, inflation, the Fed and profits. This is not the 2008-2009 banking situation and the market impact going forward at this point is expected to be tighter loan requirements, new regulations for regionals, lower margins for all deposit-related issues and an increased chance of a recession.

On a higher level, as U.S. Fed Chair Jerome Powell admitted, the current bank stress will tighten credit, with the result being "the equivalent of a rate hike or perhaps more than that." o, while the run was and is bad, it has slowed the economy directly and through additional concern. Absent more banking issues (runs), it appears to have reduced the need for prolonged Fed increases—so here we are talking about when the Fed will start its cuts.

Trading was noticeably active for March (the highest daily average in two years), as it differentiated business lines. The S&P 500 posted a 3.51% gain (up 7.03% YTD; Q4 2022 was up 7.08%). Of the 11 sectors, 7 were up (Information Technology was the best, up 10.87%, while Financials was the worst, down 9.74%). Breadth was positive, as 263 issues were up (32 up at least 10%) and 240 were down (53 down at least 10%). However, in Financials, 14 of the 65 were up and 51 were down, with two regional issues going into receivership (SVB Financials and Signature Bank), as one regional declined 89% for the month (First Republic Bank).

Perhaps just as significant as the sudden post-March 8 change in the banking environment was the market's view of the Fed (it increased rates 0.25% this month), with the market now split on whether there will be one more 0.25% hike at the May meeting or if we saw the end of rate hikes this month. The focus is now on when the Fed will start its interest cuts; predictions start in June, compared with the Fed dot matrix that started in 2024. Before we get there, however, the market will need to go through Q1 2023 earnings reports (17 off-fiscal issues have already reported, with 15 beating on earnings and 13 on sales), which opens with the big banks (April 14: Citibank, JPMorgan Chase, Wells Fargo) and regional ones (April 13: First Republic Bank). Analysts will be looking for reserves (bad debt allowance) and any market-to-market notes for the held-to-maturity securities, as well as commentary on expected new loan policy changes and levels. At this point, the Q1 2023 operating estimates have declined (-5.8%) and are predicting a slight (0.3%) decline over Q4 2022, with the traditional question being whether estimates have declined enough so that the results can be declared a beat and a victory, to which the historical answer has been yes.

U.S. Equities Market Attributes February 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

Key Highlights


- The S&P 500® was down 2.61% in February, bringing its YTD return to 3.40%.
- The Dow Jones Industrial Average® fell 4.19% for the month and was down 1.48% YTD.
- The S&P MidCap 400® decreased 1.95% for the month, bringing its YTD return to 7.01%.
- The S&P SmallCap 600® was down 1.35% in February and had a YTD return of 7.92%.

U.S. Equities Market Attributes February 2023: Exhibit 1

Market Snapshot

February was no cupid; rather, it was more of a blind date, with the market not knowing what it was getting into.  Specifically, the market re-evaluated the decreasing speed of inflation, and therefore the need for the FOMC to continue to increase interest rates (as well as the potential of a 0.50% increase) and the time period it needed to keep them higher.  For February, the S&P 500 posted a 2.61% decline, after January's broad 6.18% gain and December's broad 5.90% decline (and an uplifting 5.38% in November), which left the three-month period down 2.69%; however, the index was up 3.40%YTD.

The S&P 500 started February up 2.53% from where it left off in January, as the last of the of FOMO (fear of missing out) money propped up the market.  Reports continued to show slower inflation, but the market’s interpretation then started to focus in on the slow speed of the inflationary decline and the divergence between that rate and the Fed’s target rate, with stock prices struggling to stay positive, as the data started to imply the need for higher interest rates for a longer period.  The turnaround point appeared to have come on Feb. 21, when both Home Depot (HD) and Wal-Mart (WMT) gave cautious outlooks due to consumer spending (with Wal-Mart seeing higher sales for groceries, which have lower margins); the market then added a slower economy to potentially stubborn inflation to post the worst day of the year for the S&P 500 (-2.00%, with the year only being 29 trading days old at that point).  Concern continued to grow, as the market came to grips with a lower economic outlook, a slower decline in inflation and the realization that the FOMC will most likely be increasing rates at least three more times (March, May and June), with the March 21-22 expected increase of 0.25% (futures give it a 77% chance; it was 85% last month) potentially being 0.50% (23%, which was barely viable last month).  Prices declined, and the S&P 500 went into the red (although volume wasn’t as convincing), while interest rates increased, with the U.S. one-year Treasury Bond over 5%, giving all investments a run for their money.  The S&P 500 ended the month down 2.61%, up 3.40% YTD and down 17.23% from its Jan. 3, 2022, closing high.

In the background was Q4 2022 earnings, which, with 97.1% of market value reported, were tailing off; 480 issues have reported, with 323 (67.3%) of them beating on earnings and 311 of 476 (65.3%) beating on sales.  Q4 2022 is expected to be down 1.7% from Q3 2022 earnings and down 12.7% over Q4 2021, as sales increased 2.8% over Q3 2022 (up 8.4% over Q4 2021) and are setting a new record.  Companies were able to pass along a good part of their cost increases for the quarter, which does not appear to be extending into Q1 2023.  Operating margins for Q4 2022 were expected to be 10.80%, down from 11.28% in Q3 2022 (the average since 1993 was 8.29%, and the record is 13.54% in Q2 2021).  Talk of Q1 2023 started to pick up, although estimates have been declining (down 5.4% from year-end 2022) and are expected to be up 2.0% from Q4 2022 (the second half of 2023 has held its level), which could easily turn into a down quarter.  At this point, earnings (and cash flow) are second only to the Fed meeting (March 21-22, 2023), with significant economic data expected before that, including the employment report on March 10, when many expect a downward revision of last month’s 517,000 level.

The S&P 500 closed at 3,970.15, down 2.61% (-2.44% with dividends) from last month's close of 4,076.60, when it was up 6.18% (6.28%) from the prior month's close of 3,839.50 (-5.90%, -5.76).  The index was up 3.40% YTD (3.69%), the three-month period posted a decline of 2.69% (-2.28%) and the one-year return was -9.23% (-7.69%).  The Dow® ended the month at 32,656.70, down 4.19% (-3.94% with dividends) from last month's close of 34,086.04, when it was up 2.83% (2.93%) from the prior month's close of 33,203.93 (-4.17%, -4.09%).  The Dow was down 8.08% from its Jan. 4, 2022, closing high (of 36,799.65).  The YTD return was -1.48% (-1.13%), the three-month return was -5.59% (-5.18%), the one-year return was -3.65% (-1.59%) and the 2022 return was -8.78% (-6.86%).

S&P Target Date Scorecard: Mid-Year 2022

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Craig Lazzara

Managing Director, Index Investment Strategy

S&P Dow Jones Indices

Summary

  • The S&P Target Date® Scorecard provides performance comparisons and analytics covering the U.S. target date fund (TDF) universe.
  • The S&P Target Date Index Series offers representative benchmarks for TDFs. The series is investable and based on consensus-derived asset allocation weights; its composition is known in advance of evaluation periods.
  • S&P Dow Jones Indices also produces S&P Target Date Style Indices. The “To” style indices aim to reduce the impact of market drawdowns around the expected retirement date, while the “Through” style indices aim to mitigate longevity risk—the risk of outliving one’s assets in retirement.
  • The first half of 2022 was distressing for U.S. equities, to say the least. With concerns about inflation taking center stage, the S&P 500® (-20%), the S&P MidCap 400® (-20%) and the  S&P Small Cap 600® (-19%) all lost substantial value.  Spurred by rising inflation, rising interest rates meant bonds offered limited respite; the S&P U.S. Treasury Bond 7-10 Year Index also declined 11% in the first half of 2022.
  • Unsurprisingly, S&P Target Date Indices with higher equity allocations underperformed. Consequently, far-dated vintages declined more than nearer-dated vintages, and “To” style indices outperformed their “Through” style counterparts.

S&P Target Date Scorecard: Exhibit 1

Near-dated S&P Target Date Indices had higher risk-adjusted performance than their far-dated counterparts.  Risk-adjusted performance improved across all vintages as the evaluation period lengthened, reducing the impact of 2022’s poor performance.

S&P Target Date Scorecard: Exhibit 2

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iBoxx USD Asia Ex-Japan Monthly Commentary: February 2023

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Randolf Tantzscher

Managing Director, Head of APAC Fixed Income Product Management

S&P Dow Jones Indices

February 2023 Commentary

February saw losses across major equity and fixed income markets, a reversal of the gains made in January.  The S&P 500® dropped 2.61% as market participants fret about the possibility of higher interest rates backed by persistent inflation and a strong labor market.  At the same time, the 10-2 Year Treasury Yield Spread—a recession indicator—fell to -0.89%, its lowest level since the 1980s, sending mixed signals to the market.

Against this backdrop, U.S. Treasuries—represented by the iBoxx $ Treasuries—also gave up most of its January gains and lost 2.44% in February.

In Asia, the reopening story of China continued to unfold as the National Bureau of Statistics of China reported that its official manufacturing purchasing managers’ index rose to 52.6 in February, (up from 50.1 in January), its highest in more than 10 years.  In Hong Kong, it was also recently announced that the mask mandate would end effective March 1, 2023, a move that might attract more visitors and businesses back into Hong Kong.

 

As shown in Exhibit 1, the strong positive performance of 3.18% in January was pared back in February, with the overall index falling 1.38%.  Losses were spread across all rating categories, with investment grade retreating 1.38% and high yield declining 1.35%.  The index yield rose 0.42 percentage points to 6.16%, and the index spread continued to narrow by 4 bps to 195 bps.

Despite the generally negative returns across most markets in February, high yield bonds and China LGFVs have moved into positive territory on a one-year rolling basis; the other categories remain in negative territory.

Exhibit 1: Recent and Long-Term Index Performance

The upward shift in the USD yield curve caused returns to be negative across all rating and maturity categories of one or more years (the only exception was the 10+year band of CCC rated bonds).  In contrast, the very short end of the curve saw gains across almost all rating categories.

Exhibit 2: Rating and Maturity Month-to-Date Index Performance

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iBoxx Asian Local Currency Indices Monthly Commentary: February 2023

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Kangwei Yang

Director, Fixed Income Indices

S&P Dow Jones Indices

Monthly performance, maturity, yield and duration of the iBoxx ALBI, iBoxx ABF and iBoxx SGD Indices.

February saw losses across major equity and fixed income markets, a reversal of the gains made in January.  The S&P 500® dropped 2.61% as market participants fret about the possibility of higher interest rates backed by persistent inflation and a strong labor market.  At the same time, the 10-2 Year Treasury Yield Spread—a recession indicator—fell -0.89%, its lowest level since the 1980s, sending mixed signals to the market.

Against this backdrop, U.S. Treasuries—represented by the iBoxx $ Treasuries—also gave up most of its January gains and lost 2.44% in February.  

In Asia, the re-opening story of China continued to unfold as the National Bureau of Statistics of China reported that its official manufacturing purchasing managers’ index rose to 52.6 in February, (up from 50.1 in January), its highest in more than 10 years.  In Hong Kong, it was also recently announced that the mask mandate would end effective March 1, 2023, a move that might attract more visitors and businesses back into Hong Kong.

Exhibit 1: iBoxx ALBI Overall and Single Market Returns

Similar to the U.S., Asian local currency bond markets—as represented by the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD)—declined 4.33% in February, effectively erasing gains from January.  Losses were widespread across numerous markets, and at the same time, the U.S. dollar appreciated against all underlying currencies.  

Modest gains were observed (in local currency terms) in China Off- and Onshore, India and Indonesia, with China Offshore leading the pack at 0.44%.  At the other end, South Korea (-3.01%) and Hong Kong (-1.88%) posted the biggest losses.  

The largest losses were concentrated at the long end of the curve, with both Hong Kong 10+ and South Korea reporting losses of more than 5%.  The only market with gains across the yield curve was China Offshore, with its medium-to-long-term bonds leading the gains last month.

At the end of February, the overall index yield increased by 19 bps to 3.98%.  Except for China Offshore (down 0.12 bps), yields across all other markets rose with Hong Kong topping the chart (up 60 bps).  India remained the highest-yielding bond market in the index, offering 7.45%, while Thailand (2.97%) remained the lowest-yielding market.

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