Quarterly Commentary – Q2 2023

The quarter began with the second largest U.S. bank failure as regulators seized First Republic Bank and engineered a sale to JPMorgan.  The failure followed the collapse of Silicon Valley Bank and Signature Bank in the first quarter.  The sale ended a period of initial panic due to a banking crisis that threatened the economy, but was largely contained to regional banks. 

 

The second major concern in the quarter was the uncertainty pertaining to the U.S. debt ceiling.  However, with “time running out”, Congress approved a deal, which raised the debt ceiling and included spending concessions, avoiding a default.

 

The Federal Reserve raised the Federal Funds Overnight Rate 25 basis points in May, but did not raise the reference rate in June.  The “Hawkish Pause” did not signal an end to the rising rate cycle.  Current Fed Dot Plot projections indicate that rates will likely close 2023 50 basis points higher than the current target range of 5.00% to 5.25%.

 

Economic growth surprised to the upside as GDP was revised to 2% for the first quarter annually from the prior estimate of 1.3% growth.  Inflation continued to moderate as CPI continues to trend down. The unemployment rate for May was 3.7%, which historically is considered full employment. 

 

The fixed income markets have continued to accept that rates will likely remain higher for longer and the inverted yield curve continues to reward higher yields toward shorter maturity investments over longer maturity investments.

 

SWS Capital Management’s [SWSCM] philosophy is based on a value-oriented, active management style which emphasizes liquidity and risk management.  This philosophy is woven into all our strategies.  Security selection, sector allocation, and yield curve positioning are based upon interest rate anticipation as well as our fundamental economic outlook.

 

SWSCM continues to position strategies shorter duration to benchmark. This quarter we increased portfolio duration closer to benchmark. Opportunistically, we continue to add credit exposure to many of our strategies.

 

As always, we are available to answer any questions on the economy or your portfolios, and we thank you for your business.

 

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Investing involves risk including loss of principal. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.