April 2023 Commentary

Apr 30, 2023


The Federal Reserve raised its benchmark interest rate by 25 basis points, to a range of 5-5.25%. This brings the rate close to the peak seen just before the financial crisis in 2008. While the market is currently pricing in rate cuts at the end of the year, we believe this only happens if the Fed is forced to act. One reason this could occur would be continued bank failures.

The current market uncertainty highlights the importance of our Dynamic Cash Allocation© risk management approach in our view. We will continue to implement it in client portfolios to adjust exposure to risk assets. We believe this gives us the best opportunity to deliver better risk adjusted returns for our clients over full market cycles than more traditional investment approaches.

April 2023 Market Commentary

In this month’s commentary we provide an overview of market sentiment as well as our thoughts on key market insights and provide an update on our Asset Allocation Models as of the end of the month. Some high-level takeaways:

  • The banking crisis continued this month with the First Republic Bank failure – the second largest in US history. 
  • In the 2008 financial crisis, it took time for the bad debts and unrealized losses on bank balance sheets to be exposed. The current conditions (high interest rates, large unrealized losses form long-dated bonds, bank deposits leaving for higher-yielding MMFs) will continue to impact the banking sector, and unless these conditions change, eventually more bank failures will happen in our view. 
  • As a result, new lending has slowed to a trickle. This is causing a notable contraction in the US Dollar Money Supply, a rare occurrence in modern history and generally viewed as a leading indicator for a recession.
  • Another issue of relevance this month is the looming debt ceiling crisis. While we don’t think a long-term default risk exists, the fear and uncertainty around this narrative could cause turmoil in asset markets over the coming months.

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