Q1 2023 Quarterly Commentary

Mar 31, 2023


We believe that the Fed reacted too slowly in addressing inflation and, as a result, has tightened too aggressively in the face of a weakening economy and a ballooning federal deficit. As a result, we believe central banks will eventually have to back off from rate hikes and turn to a more accommodating monetary policy – if they haven’t started already.

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.

Q1 2023 Quarterly Commentary

In this quarter’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 quarter. Some high-level takeaways:

  • The banking crisis was caused by the aggressive interest rate hikes by the Fed and the inversion of the yield curve in our view which is causing pressure on bank margins and unrealized losses on bank balance sheets.
  • The Federal Reserve introduced the Bank Term Funding Program (BTFP) to inject liquidity into the banking system to stabilize it, but further action may be required if interest rates remain high and/or if other areas of the credit markets are impacted such as commercial real-estate or other sectors that have large credit exposure on their balance sheets are impacted like insurance companies.
  • The crisis could lead to the end of Quantitative Tightening and the beginning of a new period of Quantitative Easing in our opinion, resulting in a second, more severe period of inflation in most industrialized countries during the next few years.
  • Investors should prepare themselves for living with higher inflation and interest rates, as well as greater macro and geopolitical risks in our view.

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This blog is a publication of Blue Square Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of subjects discussed. All expressions of opinion reflect judgment of author as of date of publication and are subject to change. Information contained herein does not involve rendering of investment advice. A professional adviser should be consulted before implementing any of strategies presented. Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell securities mentioned herein. Different types of investments involve varying degrees of risk. Economic factors, market conditions, and investment strategies will affect performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. This document may contain forward-looking statements relating to objectives, opportunities, and future performance of U.S. markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “should,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to economic conditions, changing levels of competition in industries and markets, changes in interest rates, and other economic, governmental, regulatory and other factors affecting a portfolio’s operations that could cause results to differ materially from projected results. Such statements are forward-looking in nature and involve known and unknown risks, uncertainties and factors, actual results may differ materially from those reflected in forward-looking statements. Investors cautioned not to place undue reliance on forward-looking statements / examples. None of Blue Square Wealth or any affiliates, principals nor any other individual / entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances.