In this episode of KayneCast, Managing Director Jordan Greenhouse provides a Q1 2023 stock market review with Chris Armbruster, Portfolio Manager for the Kayne Anderson Rudnick Mid Cap Sustainable Growth strategy. Together, they evaluate the impact of the March 2023 bank failure on the markets and Mid Cap Growth performance.
Q1 2023 Mid Cap Growth Robust Despite Banking Crisis
Armbruster notes that March saw the second and third largest bank failures in U.S. history with the collapse of Silicon Valley Bank and Signature Bank. Fears of systemic banking vulnerabilities increased when the Swiss government stepped in to facilitate the acquisition of Credit Suisse Bank by UBS.
Armbruster believes the banking crisis will have a temporary impact on the market and that: “the banking issues will be contained to a small handful of banks that had somewhat unique characteristics. For Silicon Valley and Signature, it was exposure to the venture capital community but more importantly it was an almost universal exposure to uninsured deposits. For the failed Silvergate Bank it was direct exposure to cryptocurrencies and for Credit Suisse the problems of mismanagement ran back years, maybe even decades.”
Emergency liquidity measures gave depositors access to funds, which increased the market’s confidence in the broader banking system. These reinforcements coupled with declining inflation readings gave renewed confidence to investors and Armbruster believes this activity should allow equities to “advance meaningfully based on their own business merits and execution as opposed to being subject to influence from external forces.”
Despite the banking crisis and hotter-than-expected economic data, the market did end Q1 2023 in positive territory with the S&P 500 up 7.5% and the NASDAQ up 17%.
What Q1 Means for Mid Cap Growth in 2023
The Feds raised interest rates another 25 basis points to 4.75% in Q1 2023 but also expanded its balance sheet for the first time in a year, extending liquidity to alleviate the banking crisis. With interest rates at or near zero for most of the last 15 years, the market became accustomed to an abundance of liquidity. Armbruster notes that investors are now seeing the “process of removing that artificial stimulus from the markets and it is going to be an uneven process.”
Uncertainty in the banking sector will likely further dial back lending, and with less liquidity businesses will not be able to fall back on inexpensive external capital, Instead, companies will need to succeed on their own merits. As such, Armbruster’s focus for the KAR Mid Cap Growth strategy is to continue evaluating each of the portfolio’s companies’ ability to maintain self-funded growth over the long-term.
Listen to the podcast to learn more about Mid Cap Growth performance in Q1 2023, or read our complete Q1 2023 market review where KAR CIO Doug Foreman reviews market performance and provides an outlook for what’s ahead in 2023.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. Past performance is no guarantee of future results.