April 11, 2023

Q1 2023 market update: Investor sentiment strong despite economic uncertainty

The global economy grew over the first quarter of 2023. Global equity markets moved higher. Read on for our view of the global economy and financial markets.


  • Concerns about the financial system
    • The failure of SVB raised concerns about the banking sector.
    • A few other regional banks in the U.S. and Crédit Suisse in Europe also came under financial pressure
    • Global central banks, regulators and large banks acted quickly to stop the problems from spreading to other banks
  • Many central banks slowed the rate of interest rate increases
    • Interest rates are likely to increase. The U.S. Federal Reserve Board (Fed) expects its key interest rate to reach 5.1% by year-end
  • Inflation is showing signs of slowing but is still high
    • Inflation eased in many countries in response to falling energy prices
    • Inflation was above the desired target ranges for many central banks

An uncertain but stable global economic outlook

Global economic growth slowed but economic activity progressed. A potential recession lingers in response to:

  • Ongoing geopolitical tensions,
  • tighter financial conditions, and
  • challenges in the banking sector.

Relatively strong consumers continue to drive economic activity and could offset the weakness.

The banking sector took the spotlight after regional bank SVB fell into receivership. The swift actions of central banks, regulators and large banks eased investor concerns about the industry.

Central banks began to slow the pace of their interest rate increases as inflation started slowing.

How are major economies doing?

  • The U.S. economy grew by 2.6%
  • China’s economy grew by 2.9%
  • Europe’s economy stalled at 0%
  • Japan’s economy grew by 0.1%

Global equity markets rose

Equity markets rose across many developed and emerging markets in the first quarter of 2023.

  • Global equities advanced. Central banks continued to raise rates.
  • There were periods of market volatility as the global financial system came under pressure.
  • Equities in Canada, the U.S., the U.K., Europe, Asia and Japan made gains.
  • The S&P 500 Index, Dow Jones Industrial Average and the NASDAQ Composite Index rose.

Global yield curves stayed inverted

  • Global bond yields moved lower over the quarter. The yield curve stayed inverted in many countries. An inverted yield curve historically points to a recession.
  • Canadian bond yields moved lower as the Bank of Canada (BoC) signalled a pause in interest rate increases. The BoC may pause as inflation eases and economic growth slows.
  • Oil prices fell over the quarter. There were concerns global demand could decline amid a drop in economic activity.
  • Gold prices advanced as investors sought its relative safety amid uncertainty.

How did the Canadian economy do?

Canada’s economy and markets stalled

  • The BoC raised its benchmark overnight interest rate by 25 basis points before holding steady at 4.50% at its second meeting of the quarter.
  • Inflation was 5.2% in February, its lowest level since January 2022.
  • Canada’s labour market remained strong. The unemployment rate shrunk to 5.0% in February, as the economy added jobs.
  • Canadian equities posted a small gain over the quarter. The information technology and materials sectors posted the highest returns. The energy sector was the weakest performer.
  • Canadian bond prices rose as yields moved lower. The yield on the 10-year Government of Canada bond declined.
  • Canada’s economy remained unchanged in the first quarter of 2023. Rising consumer spending helped Canada’s economy. A drop in business investment and real estate activity offset consumer strength.

What can investors expect in the future?



U.S. interest rates

The Fed will likely continue raising rates during the second quarter. The Fed expects rates to reach 5.1% by the end of 2023.

Canadian interest rates

The BoC will likely continue to pause interest rate increases. The BoC could shift its path if economic conditions change.

Canadian dollar

There could be downward pressure on the Canadian dollar. If the dollar loses strength, it would help Canada’s exports but make imports more expensive. This situation could add to price pressures.

Tight financial conditions

Higher borrowing costs and elevated inflation could challenge economic growth.

Oil prices

Oil prices may drop further if global economic activity weakens.

Canadian economy

Economic activity may weaken amid tighter financial conditions and a slowing global economy.

Real estate

Canadian real estate could stabilize. Demand may increase following the BoC’s pause in interest rate increases. Low supply may drive prices higher.

This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. This commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. Please note, any future or forward-looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.

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