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Economic Update — Reviewing Q1 2023

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Q1 of 2023 is officially wrapped, and it was a positive one for US stocks. The NASDAQ led the way, rising 16.77% YTD, while the S&P 500 advanced 7.03%. The Dow Jones posted a more modest gain of 0.38% over the quarter. 

Q1 marked a remarkable recovery for the growth-heavy NASDAQ, which finished 2022 down 33.1%. The Dow and the S&P both rebounded to a lesser degree, bouncing back from 2022’s -8.8% and -19.4% returns, respectively.

A chart showing the returns from the NASDAQ, S&P 500 and Dow Jones for Q1 2023

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Below is a sneak peek of insights from the YCharts Q1 2023 Economic Summary Deck. The deck, published quarterly, arms advisors and investors with key insights from the previous quarter to help you make smarter investment decisions going forward. Visuals can also be copied from the deck for your preferred use.

Asset Class Performance

The table below shows the performance of asset classes over increasingly longer lookback periods.

A quilt chart showing asset class performance over several periods of time , as of 3/31/2023

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All but one asset class was positive in Q1 of 2023. US Growth outpaced all asset classes with a 14.4% return, followed by World ex-USA’s 8.2% return and the S&P 500’s 7.5% return. Commodities was the only laggard, posting a -4.9% return.

Major Technology companies helped lift the S&P 500 and Russell 1000 Growth. For example, Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), NVIDIA (NVDA), and Alphabet (GOOGL) are the top 5 holdings in the S&P 500. Specifically, NVDA had a meteoric rise to start the year, gaining 90% in q1. Not to mention all of those other companies also had double-digit gains in Q1. 

10-2 Treasury Yield Spread Hits Record Low: Is the Economy in Trouble?

The 10-2 Treasury Yield Spread, which measures the difference between the yields on 10-year and 2-year Treasury bonds, has been inverted since July 2022. An inverted yield curve can create significant challenges for banks and other financial institutions, leading to a credit crunch and decreased consumer spending, which can further weaken the economy.

With the exception of the brief recession in 2020, historically, a negative 10-2 Spread has been a leading indicator of a recession. With the 10-2 Spread hitting its lowest point in over four decades in March 2023, investors and economists are left wondering: could a recession be on the horizon, or will the economy prove resilient?

A chart showing  the spread between  10 year and 2 year treasury bonds from 12/31/1976 to 3/31/2023

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