Market View

Quarter 1, 2023

Q1 2023 Market Summary

Central bank tightening started one year ago

The close of an eventful Q1 also marks the 1-year anniversary of the start of the U.S. Fed’s tightening cycle (3/16/2022). With the S&P 500 total return down about 8% over the last year (April 1, 2022 to March 31, 2023), it’s the first example since the early 1980’s where stocks were lower in the initial 12 months following the first hike.

A year of rising bank rates

It has also been the most robust pace of tightening since the August 1980 tightening cycle began. The U.S. Fed Funds rate has been raised 9 times, from 0.50% in March 2022 to 5.00% today. The Bank of Canada has raised its rate 8 times from 0.50% in March 2022 to 4.50% today. 

Inflation is still high

Both central banks are lowering the money supply in the system and raising the cost of loans to lower demand and slow down the inflationary pressures in the economy. The U.S. inflation rate is 6%. The Canadian inflation rate is over 5%. The target inflation rate is 2% to 3% which means that interest rates will remain at these higher levels until the economy starts to cool. 

Lower growth expectations

The OECD projects that annual U.S. GDP growth will be 1.5% in 2023 and 0.9% in 2024. In the economic overview from the Government of Canada’s recent budget, real GDP growth is projected to decelerate from a strong 3.4% in 2022 to 0.3% in 2023, before rebounding to 1.5% in 2024.  Unemployment is expected to rise to a peak of 6.3% by the end of 2023. 

In the Headlines:  Failures of U.S. regional banks

A few words dissecting the financial events that have occurred recently in the U.S among small and mid-sized banks. Three banks, Signature Bank in New York, Silvergate Bank and Silicon Valley Bank both in California, have failed while another, First Republic Bank also in California, is in need of support. The common denominator here is that the deposit bases of these banks were highly concentrated. The clients of these banks had very large deposits and being in similar industries (Silicon Valley) were affected simultaneously from deteriorating access to essentially free money when interest rates began to increase.  When money became harder to raise, they needed access to their deposits. All at the same time. This led to the proverbial run on the bank.

In contrast, PMC’s bank holdings are very large financial institutions with not only diversified depositor bases but also diversified business income streams, reducing the risk described above.

It was interesting to read in the New York Times recently that in contrast to US banks, Canada’s banks remain “stable and resilient” and that“the country’s financial stability, and the high profitability of its banks at a time when those in the U.S. are in turmoil, comes from strong regulations.” (New York Times, 2023-03-18). 

PMC’s perspective

Each of the 3 PMC partners have over 25 years' experience in navigating these cycles and we feel it best to wait until the dust settles. Over time, other issues tend to come to light (bad loans) especially when interest rates have moved as far and as fast as they have. 

In other news:

We have RRSPs, LIFs, RRIFs, LIRAs, TFSAs, RESPs and now FHSAs!

In 2022, the Government of Canada announced the creation of a new tax-advantaged savings vehicle to assist first-time home buyers.  Below are the most recent developments.

Beginning the Spring of 2023, the First-time Homebuyer Savings Account (FHSA) becomes available to any age of majority Canadian resident who wants to begin saving $40,000 on a tax-free basis towards the purchase of their first home.  The 2023 annual contribution is $8,000 no matter when the FHSA is opened during its inaugural year.  In addition to the annual contribution being tax deductible, the investment earnings within the account will be tax-free and remain tax-free upon withdrawal as long the funds are used to purchase a qualifying home. Any unused contribution room can be carried forward as long as it doesn’t exceed the annual maximum contribution or the maximum lifetime amount of $40,000.  The FHSA has a maximum life span of the lesser of 15 years or the year the account holder turns 71.  

FHSAs combine the best of tax-free savings accounts and registered retirement savings plans. You get a tax deduction on your contributions, as with the RRSP, and you get the TFSA’s tax-free withdrawals when using the account to buy a home. As with both RRSPs and TFSAs, investment gains earned in an FHSA are tax-sheltered.

We are waiting for information from NBIN regarding the administration of this new programme.



  1. “Investor lessons from the Silicon Valley Bank collapse” on March 14, 2023 via BNNBloomberg:
  2. Interview by Yahoo Finance on managing currency risk on March 20, 2023: As the loonie fluctuates, here’s how you can manage currency risk (
  3. Podcast with CPA Canada on managing investments in uncertain times on January 30, 2023: Foresight: The CPA Podcast: Managing investments in uncertain times on Apple Podcasts