In this episode of KayneCast, Richard Sherry, Portfolio Manager for the Kayne Anderson Rudnick Global Dividend Yield  strategy, joins Managing Director Jordan Greenhouse for a stock market review of Q1 2023 and the impact market forces had on the Global Dividend Yield strategy

Q1 2023 Stock Market Rocked by Banking Crisis 

January 2023 saw market optimism rise, as investors anticipated that the Fed would start to slow its tightening interest rate cycle, reducing the risk of recession. January saw strong performance from both high-quality and economically sensitive companies.

However, conditions changed in February, when a strong employment report led to concerns that the Fed would continue to raise interest rates for longer than expected. Historically, banking customers have typically moved assets from banks to money market funds during extended periods of high-interest rates. Worries about a harder landing led to weak markets.

Then in March the banking sector saw the collapse of three banks: Silicon Valley Bank, Signature Bank, and Silvergate Bank. The collapse was due to “a combination of issues related to crypto (Silvergate Bank and Signature Bank) and poor asset-liability management (Silicon Valley Bank).”

As a result, Sherry believes banks owned by the KAR Global Dividend Yield strategy will see a “negative impact to earnings, but not to capital” as banks are better equipped to handle these issues today compared to the financial crisis of 2007-2009.

Global Dividend Yield Outlook Impacted by Possibility of Recession

March’s banking crisis may prompt the Fed to stop increasing interest rates shortly. This belief led to a strong performance for technology stocks in the last two weeks of March, as tech companies have historically benefited from lower interest rates.

Sherry notes, “higher interest rates can sometimes be negative for higher-yielding stocks. However, the Fed’s game plan remains to tame inflation and return it towards its 2% target, which should result in lower interest rates in the future and provide a more stable economic environment.”

The current stock market outlook hinges on how long the Fed plans to maintain high-interest rates and whether we will have a hard or soft landing if a recession occurs. Sherry continues to diligently monitor businesses in the Global Dividend Yield strategy to ensure they remain resilient, even in a post-recession pick-up economy.

Listen to the podcast to learn more about the Global Dividend Yield strategy performance in Q1 2023, or read our complete Q1 2023 market review for KAR CIO Doug Foreman’s review of market performance and his outlook for what’s ahead in 2023.