CIO Monthly Observations - April 2023

Chris Zaccarelli |

Markets in Review

Markets bounced back in March, as the S&P 500 gained 3.5% during the month, improving its year-to-date performance to 7.0%. The MSCI All Country World index also rose, gaining 2.8% in March and extending its year- to-date return to 6.8%. The Bloomberg BarCap U.S. Aggregate Bond index jumped 2.5% during the month and its year-to-date return is now 3.0%.

The topsy-turvy month was punctuated by bank failures in the US and a takeover of Switzerland’s second largest bank, but markets finished the month on a strong note as the crisis was deemed to be under control and the Fed didn’t let the bank issues deter it from its primary objective of fighting inflation.

Monthly Highlights

The main US banking regulator was hauled before Congress to discuss major bank failures The Federal Reserve continued raising interest rates, despite the banking turmoil Switzerland’s second largest bank was taken over as part of a ‘rescue plan’

News in Review

Below are some stories that caught our eye this past month. To learn more, follow the links to the full article.

Fed's Barr to Congress: SVB's Failure is 'Textbook Case of Mismanagement'

Silicon Valley Bank was the 16th-largest bank in the United States and it failed last month after a run that concluded with $40 billion in deposits removed from the bank in a single day. The Federal Reserve Vice Chair of Supervision, Michael Barr, was hauled before Congress to explain what went wrong and he pointed the finger squarely at SVB’s management, saying they “had a concentrated business model, serving the technology and venture capital sector…the bank did not effectively manage interest rate risk.”

Fed Hikes Rate 25 bps in March

The Federal Reserve Bank raised interest rates again in March, increasing the Fed funds rate to an upper bound of 5%, from 4.75% previously. So far, the economy doesn’t seem to be in recession and up until this month, there were little ill-effects of the Fed raising rates 9 meetings in a row, until Silicon Valley and Signature Bank both failed in March. The Fed is now in a position where they need to keep the banking system secure, while also bringing inflation back down to more normal levels, which is going to be a challenging balancing act.

Sergio Ermotti Returns as UBS CEO to Steer Credit Suisse Takeover

While a number of banks in the US were failing because they didn’t properly manage their interest rate risks, the second largest bank in Switzerland (Credit Suisse) needed to be rescued by UBS. The rescue took the form of a takeover by its main rival, which also announced that they had rehired their former CEO, Sergio Ermotti, to lead the efforts to integrate the two Swiss behemoths. Ermotti’s experience turning around UBS after the Global Financial Crisis is seen as a big positive as he takes on his largest challenge ever.

Rome Wasn't Built in a Day, but They Sure Had Strong Concrete

Scientists have wondered for centuries how the Romans were able to build structures that could survive for thousands of years and they recently discovered that they used “self-healing concrete." Apparently, a mixture of limestone, water and volcanic material was used to build the Colosseum and other ancient structures and it was the last ingredient that was theorized to give it strength, which is true. But it’s the limestone that reacts with rain to fill in any cracks in the foundation that develop over time, and when that dries, it effectively “heals” any cracks that appeared prior to each rainstorm.


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S&P 500 INDEX: The Standard & Poor's 500 Index is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
NASDAQ 100 INDEX: The Nasdaq 100 Index is an unmanaged, capitalization-weighted index of the largest 100 non- financial stocks traded on the Nasdaq market. Unlike the S&P 500 it does not represent all major industries and may be more volatile than more broadly constructed indices.
MSCI ACWI INDEX: The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries. With 2,495 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index: The Bloomberg U.S. Aggregate Bond Index is a broad-based index of the U.S. investment-grade, fixed-rate bond market, including both government-related and corporate securities and mortgage- backed and asset-backed securities.
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