The first quarter of 2023 shows how far markets can swing in such a short time. In fact, double-digit moves in a single month are common even for market indexes. But how you react to those moves matters.
Unexpected events in March are a perfect example. Concerns about the health of a bank had a cascading effect. News of depositor withdrawals at Silicon Valley Bank set off further withdrawals, and finally a rush for the exits. The bank failed because depositors panicked.
Of course, that news tanked the bank’s stock, set off rumors of other banks at risk, and the financial sector dropped 14% in two weeks and a 10% loss in March.
The episode is a lesson in itself. People make up markets. A shift in their emotions moves markets. The most important part of investing is keeping your cool when the markets get crazy because emotions often undermine long-term returns.
A note before getting to the 2023 numbers. The asset class, sector, international markets, and emerging market return quilts are up-to-date with the first quarter returns. Hit the links for each one.
There are four tables below. Three tables break down sector, developed market, and emerging market returns by month. The final table ranks all three by the first quarter total returns. The tables offer some broader lessons for investors.
- Monthly returns paint a picture of what investors must endure to earn an annual return. The swings from gain to pain and back are stark even over a brief three months.
- Market timing is a fool’s errand no matter what anyone says. Trying to predict the monthly or quarterly market swings on a consistent basis is not a strategy. Nor is it possible.
- Surprises are a natural occurrence throughout market history but not all surprises derail the entire market. The surprising bank failures in March saw the financial sector drop 10% while only mildly impacting a few sectors. The rest were positive, with two sectors up double-digits for the month.
- The benefits of diversification are clear in each of the first three tables. Gains from one area soften the blow of losses in another area. More importantly, it takes the guesswork out of figuring out in advance where the best returns will come from in any given month or year. A diversified portfolio has you covered.
Some lighter observations on the first quarter:
- How many people had the Czech Republic as the best investment to start 2023? That’s right, nobody. Yet, it was up 33% in Q1.
- Two of the three worst-performing sectors last year — Info Tech and Consumer Discretionary — were the first and third best-performing sectors in the first quarter — both earning 15+% returns.
- The second best performing sector — Consumer Staples — at 21% through three months was flat last year.
- 40 of 46 developed and emerging markets gained in January. The six markets that fell, saw losses ranging from -0.02% to -8.2%.
- Of the 40 developed and emerging markets with January gains, only 7 saw gains in February. Of those 7, only 5 — Ireland, Spain, Italy, Denmark, Sweden, and the Czech Republic — saw gains in each of the first three months of the year. It’s rare for markets to go up (or down) month after month after month. Some retracement should be expected.
- Only two developed markets — Hong Kong and Norway — ended the first quarter with a loss. Norway was the only market with losses in each of the first three months.
- Returns for emerging markets were more evenly distributed — 12 countries had gains, 12 countries had losses — for the first quarter, with the range of returns spanned from 33% to -13%.
- Overall, most markets finished the first quarter of 2023 positive, which is almost exactly the opposite of how they ended 2022.
2022: A Year in Returns
2022: First-Half Returns