2023 First quarter market review

The year began with some positives for equities and interest rates, in spite of volatility midway through the quarter.


Equity markets began the first quarter of 2023 on a high note. Despite volatility chipping away at equity gains, markets finished the quarter higher, with stocks from the major indices registering positive gains.

In general, corporate and government bond yields fell during the quarter, as investors started to price in future interest rate cuts. The spread between the two-year rates in Canada and the U.S. narrowed towards the end of the quarter, which is a positive sign for the strength of the loonie.

The U.S. Federal Reserve maintained its hiking policy through the quarter but hinted at a possible pause in March, while the Bank of Canada indicated a pause following its hike of 25 basis points in January.

Canadian equities

The S&P/TSX Composite Index was positive for the quarter, rallying 3.69% in the first quarter, driven by positive contributions from the information technology and materials sectors. All sectors were positive for the quarter except health care and energy.

Reversing course from last year, Shopify rallied, driving performance in information technology in Q1. Other tech names rebounding were OpenText and Blackberry, increasing 29.94% and 40.59% respectively.

Materials gained, due to the appreciation in gold globally. Despite headline risk in the banking sector, Canadian financials finished the quarter positive (even with a 5.71% drop in March).

U.S. equities

The S&P 500 Index gained through the first quarter of 2023. The U.S. benchmark for stocks rose 7.03% (in U.S. dollars), with the information technology, telecommunications and consumer discretionary sectors the main contributors, while financials and energy stocks lagged. 

U.S. financials declined by 6% for the quarter, due to banking concerns that were quickly averted by strong and decisive action by the U.S. Federal Reserve, FDIC and U.S. Treasury.  

Information technology stocks gained 21.5% (in U.S. dollars) for the quarter, with Nvidia returning 90.07%, contributing greatly to the sector's rebound. 

Consumer discretionary equities increased 15.8% in the quarter, as cruise lines saw revenue growth more than quadruple from a year prior.

Despite the short-term volatility, markets ended the first quarter higher. 

International equities

Even considering the failure of Credit Suisse and poor performance from Europe's financials, the Europe, Australasia and Far East (EAFE) Index had a great quarter once again, rising by 7.65%.

The U.K. index (the FTSE 100) was the laggard in the international markets, showing a return of only 2.42%.

In general, Europe was much stronger; the EuroStoxx 50 Index had a return of 13.74%, on the back of better-than-expected economic data and attractive valuations.

Fixed income

Barclay's Global Aggregate Bond Index returned 3.01%, and Canada's Government Bond Index 3.37%, a very strong quarter for fixed income.

Even corporate bond results were impressive; the ICE Bank of America Corporate Bond Index returned 3.45% in U.S. dollars, and the ICE US High Yield Composite returned 3.72%.

These results are mostly explained by the drop in bond rates, following the banking crisis that happened in March. 

Looking ahead to the rest of the year

While we still expect to see a recession in the coming quarters or in early 2024, with a strong labour market in North America it’s our expectation that it will be a mild one. 

In spite of a potential recession, there are opportunities for investments in the market right now. The outlook for 2023 is expected to be one of peaks and troughs, with inflation and interest rates near their peak and equity markets possibly near a trough, due to a focus on valuations.

Diversification across asset classes will provide more upside potential going forward. While credit markets have tightened (increasing the odds of a recession happening faster than some expected), there are also some positive signs, especially in international markets.