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Market Review May 8 2023
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April 2024

Market Review - May 8 2023

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In this week's market review, we're taking a closer look at how the S&P 500 has been crushing it, even in the face of increasing rates. We're also exploring some potential routes back to new all-time-highs. Finally, we'll delve into the U.S. Regional Bank stocks. Let's just say, it's not a pretty sight.

Don't miss out on all the action! You can read last week's review here.

This time is different.

The U.S Federal Reserve has executed the fastest rate increase since the 1980s. The Federal Funds rate just surpassed 5% for the time in 16 years. Nevertheless, despite these circumstances, the market has shown remarkable resilience, with a mere 15% dip from its peak in January 2022. Below, we've charted the S&P 500 drawdown and the interest rate since 1980. The dashed lines indicate periods of high interest rate increases. As we can see from the chart, the current market performance is an anomaly. In the previous instances where rates have increased to similar levels, the market has declined precipitously.

Interest rates vs S&P 500 drawdown

Where to from here?

We've analysed every significant market drawdown since 1980. We can observe from the chart below that the present downturn is less severe than the others. Assuming that the market has already bottomed, we can anticipate a robust return in the upcoming months. The green line indicates the average return following a market low.

It is important to note that on a macroeconomic level, we are not completely out of the woods yet. Interest rates are very high. Many small-cap stocks are struggling and the market is being kept afloat by large tech. Apple and Microsoft now account for over 14% of the S&P 500.

S&P 500 drawdowns

Regional Bank Stocks

First Republic Bank (FRC) was the latest and the largest bank stock to fail in 2023. Regional Bank stocks have been obliterated so far this year. The average return of the industry is -27% and only a handful of stocks are positive year-to-date. The chart below represents the market cap and year-to-date return of every regional banking stock. If the Fed continues to increase rates, then it's likely that these stocks will continue to plummet.

U.S Regional Banks year-to-date

💡 If you'd like to research and create your own stock strategy using various market cap groups or sectors, then check out our Xplore Stocks tool. 💡

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