First Quarter Market Review: Growth, Geopolitics, and Banking Sector Turmoil

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In the first quarter of 2023, global growth generally surpassed expectations, with the US and European composite purchasing managers’ index (PMI) business surveys highlighting the rebound. Factors such as lower energy and oil prices, along with the reopening of China, have significantly improved business sentiment. Consequently, developed market stocks returned nearly 8%. Nevertheless, the geopolitical backdrop remains complex due to ongoing conflicts and renewed tensions.

Financial Sector Instability and its Impact on Markets

Notably, the collapse of Silicon Valley Bank (SVB) in March, the second-largest banking failure in US history, triggered a major sell-off in the US and European financial sectors. Despite this, markets started the year positively, with equities rallying in January and fixed income markets responding well to declining inflation and expectations of more relaxed monetary policy. However, the persistent core inflation and resultant reassessment of interest rate expectations caused a downturn in February.

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