April marked the first month since April of 2022 where the S&P 500 had positive year-over-year returns. Payroll data came in above expectations and inflation cooled to its lowest level in almost two years. The Fed hiked interest rates again to 5.25% despite ongoing issues within the banking sector. The treasury yield curve continued to get more inverted, but equity markets have shrugged off all signs of distress up to this point as the S&P 500 is up over 9% YTD.

While the pace of inflation has slowed significantly in recent months, it is still quite a bit higher than central banks would like. Investors are trying to gain any advantage they can in this environment by looking for signals of economic improvement or disappointment.

Solid returns in the first quarter of 2023 will be celebrated by equity and bond investors alike. As we look ahead to the second quarter, let’s consider what may support further economic growth. The U.S. labor market continues to be one of the strongest pillars of the global economy. After avoiding an energy catastrophe this winter, the European manufacturing sector is showing renewed signs of life, as indicated by the headline S&P Global Flash Germany PMI Composite Output Index, which rose to 52.6 in March from 50.7 in February. Chinese economic activity is recovering now that Covid restrictions have been lifted:  Manufacturing PMI data shows three straight months of expansion, and Non-manufacturing PMI came in at 58.2 in March, marking the highest level in recent years (National Bureau of Statistics). Also, the easing interest rates and greater funding support for the real estate market in China are providing a boost to the housing market there.