It looks like the first quarter of 2023 will end with a gain for stocks, after choppy market action.
In January, markets rallied on the Chinese reopening, lower energy prices and lower inflation.
In February, there was a reversal after the US economy re-accelerated, interest rates increased, and equity valuations fell.
In March, a mini banking crisis broke out. The stock market was, however, resilient, as it appeared that the crisis was contained to only a couple of banks.
In the short run, we are optimistic on the market because it seems that the banking system has stabilised, positioning is below average, and investors are pessimistic. Our target for the $SPX500 over the next 1-2 months is 4,300.
This is only a short-term tactical view. On a 6-9 month horizon, we believe stocks will trade lower. The inflation problem is not solved; bank lending standards are tightening; and there has been no real panic at any point during the 15-month bear market.
Given the positive near-term outlook, we are planning to increase the risk level of the portfolio this week, but will not go all in. A new position has been opened in emerging market local currency bonds on the view that the banking situation has stabilised, the US dollar may weaken, and the Chinese re-opening is gaining momentum, all of which should benefit emerging markets.
2023 performance YTD
Sanofi and Newmont Mining Corp were sold. The proceeds from Newmont were deployed into Kinross Gold and Pan American Silver. A position was opened in the iShares JPMorgan Emerging Market Local Govt Bond ETF.