An early 2023 stock-market rally suffered a setback last month, leaving investors to wrestle with whether to bail out or build up positions as March gets under way.
“Put another way, after a very difficult 2022 we don’t want to take it for granted that stocks and bonds can hold their YTD gains into the end of Q1. If last year taught us anything, it is that harvest periods can be short and it’s better to bring in whatever we have rather than wait too long and see the crops fail,” he wrote.
As of the end of the month, fed-funds futures reflected expectations for a peak in the 5.25% to 5.5% range and largely factored out prospects for cuts. He noted that results were even better during the third year of the presidential cycle, with the S&P 500 posting gains 74% of the time. Colas said that investors are wrestling with a U.S. and global economy that appears to be reaccelerating, causing inflation to remain elevated amid little evidence that last year’s interest rate hikes are causing a slowdown just yet.