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After, arguably, the most difficult year for financial markets since the Crisis in 2008, stocks and bonds seemed ready for at least a slight rebound on hopes that things would be better in 2023. Markets did not disappoint as stocks came out of the gate strongly, lead by many of the biggest losers from last year, with the Nasdaq and Russell 2000 indices leading U.S. stocks, with each up 6% month-to-date at this time versus a 3.5% gain for the S&P500 and only minimal gains in the Dow Industrials). In Canada, technology (+10%) and ‘gold-laden’ Basic Materials (up 12%) sectors were leading the 5.5% TSX gain. Bonds also rallied on the view that economic growth is slowing and inflationary pressures are receding. Stocks gave back some of those gains as fourth quarter earnings reports started to flow in later in the month, heightening fears that corporate profits would be coming in lower than expected this year. Companies were less able to pass along prices increases as demand slowed but their costs, particularly materials, labour and interest costs, continued to rise. This put the squeeze on profit margins. (more…)