March was a month marked by bank failures in America and a forced banking mega-merger in Europe… but optimism still prevailed. The global eqiuity index MSCI World posted a solid gain of 2.8% in March and finished the first quarter of this year 7.2% higher. Fueling the optimism during the month, many investors believed that central banks would pivot away from their hard line, anti-inflation stance. Regionally, March brought wide gains across most markets. Asian markets led for the month, as China reported its fastest rate of growth in non-manufacturing sectors (services) since 2011. European markets led for the quarter as inflationary pressures continued to ebb, creating speculation that the European Central Bank (ECB) may be one of the first central banks to abandon its tightening monetary policies. The United States, led by its large technology companies, was up sharply in March, as the technology stocks rallied steeply in the quarter. In fixed income, government bond yields fell (meaning their prices rose). The global aggregate bond index returned 3% over the quarter.
There was a big divergence among the performance of the major U.S. stock indexes. The tech-heavy NASDAQ posted a 17.0% quarterly total return, owing in part to its relatively large weighting in technology stocks that recorded strong quarterly performance. The broad S&P500 added 7.5% for the quarter while the industrial Dow Jones was up just 0.9%. The collapse of Silicon Valley Bank (SVB), the second largest banking failure in US history, led to a sharp sell-off in the US and European financial sectors. The turbulence was short-lived though, and stocks recovered quickly to finish the month and quarter higher. The Fed expressed confidence in the resilience of the US banking system and raised its interest rate twice during the quarter – by 25 basis points in both February and March. This took borrowing costs to 5%, which is the highest point since 2007. Indeed, the February consumer price index (CPI) report showed that headline inflation had fallen to 6.0% year on year (an eighth consecutive monthly decline) and is now well down from its 8.9% peak in June. The news that inflation had climbed less than expected in March, led to speculation that further rate hikes would be limited. 
Sector performance was widely dispersed. A resurgence in technology and communication services stocks was the chief driver of strong March returns, with both sectors rallying more than 8% for the month – and technology stocks finishing 20% higher for the quarter! The financial sector fell nearly 7% as fears over the stability of US regional banks swept throughout the month. Fears of global recession caused oil prices to continue their slide. The weakness in oil prices sent energy stocks to a small loss in March, which made energy the worst-performing sector in the quarter. On the fixed income side, US treasuries returned 3% over the quarter. Inversion in the US and European yield curves, usually a harbinger of recession, lessened in March but remained inverted (longer durations offering lower yield than shorter ones). Despite the higher nominal US rates, the US dollar fell again for the 4th month (out of the last 5) against a basket of currencies.
European shares chalked up strong gains in Q1 despite volatility in the financial sector. Gains were led by the information technology, consumer discretionary and communication services sectors. Laggards were real estate and energy. The banking industry contagion from across the Atlantic led to worries about some European banks (Deutsche Bank) and to the forced acquisition by UBS of its troubled peer, Credit Suisse. However, in the end the Eurozone financials sector posted gains for the quarter, with Credit Suisse’s problems largely seen as being contained. The real estate sector saw big falls amid worries over higher financing costs and weaker occupancy rates. Nevertheless, economic activity surprised on the upside throughout the quarter on the back of falling energy prices and the resilience of services activity – the Eurozone Purchasing Managers Index was higher for the 5th straight month. In the face of such strength, the ECB raised interest rates by 50 basis points in both February and March. Eurozone inflation declined to a one-year low in March, as consumer prices came down from 8.5% in February. However, core inflation (excluding food and energy costs) rose slightly to 5.7%. ECB updated its macroeconomic projections (to higher growth and lower inflation this year) and said that any future rate hikes will be “data-dependent”. European government bonds returned 2.5% over the quarter.
March was not a good month for the Bulgarian stocks. In contrast to the positive returns on the developed markets, the Bulgarin equity indices lost some 2%-3%: the flagship SOFIX fell by 2 .9% for the month, and the broad BG BX40 – by 1.9%. March saw the rebalancing of SOFIX, which welcomed four new members, among which were the shares of the Bulgarian Stock Exchange AD itself. The best performer among the local companies in March was real estate company Advance Terrafund REIT, whose share price rose by more than 6,4%, and the worst performing was the insurance company Eurohold Bulgaria AD, whose share price fell by 16,9%.