Moran Monthly Digest: Apr. 2023

April 1, 2023

Dear Clients,

I hope this letter finds you well. As we wrap up the winter season in Naples, we wanted to take a moment to extend our warmest wishes to you. We hope you take advantage of the longer days by spending quality time with friends and family, embarking on new travel, or simply unwinding.

In March 2023, a banking crisis emerged, causing uncertainty for regional banks and highlighting the Fed’s difficult task of reducing inflation while simultaneously protecting jobs and smaller financial institutions. Unlike the 2008 financial crisis, the 2023 crisis is an interest rate sensitivity issue affecting regional banks with large government bond holdings. The Fed could maintain bank solvency by accepting collateral at par, but this increases their balance sheet size and introduces short-term uncertainty into the market. Given these challenges, the Fed must strike a delicate balance. Historically, the Fed has continued hiking rates until the Fed funds rate surpassed the Consumer Price Index (CPI); currently, the CPI stands at 5% and the Fed funds rate is at 4.75% to 5.00%. Based on this metric, we are nearing the point where the Fed may cease raising rates. However, we increasingly believe the Fed’s pivot may be too late to avoid a recession. Leading economic indicators are turning more negative, including building permits, manufacturing new orders, deteriorating retail sales and an inverted yield curve. Looking ahead, we anticipate a potential recession in the second half of this year. Nevertheless, we expect this recession to be short and shallow, which should translate into a shorter and less severe bear market, if the market corrects at all.

Our team is committed to helping you navigate these challenging times and ensuring that you feel informed and supported in your investment decisions. We will continue to monitor market conditions. Please feel free to reach out with any questions or concerns, and we will work together to position your portfolio for long-term success.

To continue reading, please download the full Moran Monthly Digest here.

This commentary is for informational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any securities. The views expressed are those of the author(s) as of the date of publication and are subject to change without notice. Past performance is not indicative of future results.

This material may have been prepared using data and analysis from a variety of sources, including but not limited to: Bloomberg, FactSet, Morningstar, S&P Global, Moody’s, Refinitiv, Capital IQ, CRSP, FRED, IMF, World Bank, OECD, and other third-party research providers. Additionally, portions of this content may have been generated or reviewed with the assistance of artificial intelligence tools, including OpenAI’s large language models or similar technologies. While we believe these sources to be reliable, we do not guarantee their accuracy or completeness.

Alternative Investments (e.g., private equity, hedge funds, real estate) are speculative, illiquid, and carry high risk, including potential loss of principal. They are not suitable for all investors. Diversification does not guarantee profit. Consult your advisor regarding suitability.

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