Mixed Messages: A Review of the First Quarter 2023


April 3, 2023


There were many eye-grabbing headlines related to the economy and capital markets in the first quarter. We continue to face uncertainty in the inflation outlook. The Fed’s rhetoric continues to be hawkish as it views inflationary pressures as the most significant threat to the economy and prosperity currently. Thus, during the quarter, the Fed raised rates twice, by 25 basis point each time. While it appears inflationary pressures are abating, and many expect the Fed to conclude its tightening process soon, there is still some uncertainty about the inflationary threat. 

While it is uncertain whether the Fed’s rate tightening endeavors will bring about an economic recession, this outcome is a material possibility. We certainly witnessed some economic stresses in the quarter which are the consequence of higher interest rates. Chief among these stresses was the “mini crisis” we faced in the banking sector, with the failure and bailout of two US banks and one European bank.

As these macro-economic factors played out during the quarter, Wall Street analysts were revising their bottoms-up corporate earnings outlooks for 2023 and 2024 downward. This is a picture of 2023 earnings expectations and the stock market performance during the quarter:


This chart is revealing and somewhat shocking. While earnings expectations dropped consistently throughout the quarter, the stock market went up! It went up even despite inflation, increasing interest rates, the rising risk of recession, and severe stress in the banking sector! You may ask, how is this possible? It seems to us the stock market is an unpredictable system that is looking ahead for marginal improvement even during times that are presently ugly. Certainly, all these things are “known” and priced within markets; and yet markets went up. 

So, what gives? How should we conduct ourselves in the face of such vexing contradiction? We at WealthPlan can’t think of a better example of why we advise taking a long-term view of your investments and why we advocate for holding your investments for the long-haul to meet your long-term objectives. The short-term can be noisy, confusing, and even scary. So, don’t let the short-term derail your long-term strategy. As we have been saying, be prepared for continuing volatility and uncertainty as we transition through this more challenging macro-economic time. Things will get better over time. In the meantime, we continue to manage assets on your behalf considering the information available to us as we make new investments and rebalance portfolios. As always, we thank you for your business and the trust you place in us.



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