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Markets experienced another fairly volatile week, again falling in the early part of the week, led by the Nasdaq, and US tech stocks, before bouncing back later in the weekly only to give it all back in the last US trading session of the week. The reasons for the initial selloff were unclear, with some speculating that valuations simply looked expensive after the recent rally. However, stocks recovered on indications from the Fed that they may be ready to start reducing interest rates around June, albeit cautiously. While uncertainty remains around near-term inflation, the Fed's stance was enough to boost investor optimism. Chinese export figures coming in reasonably strong at the end of the week also provided a fillip, especially to the Australian market. Similarly the sell-off on Friday came after a fairly mixed job report indicating a strong economy was adding jobs without wages really increasing much. That might sound like a soft landing but maybe the market was hoping for some worse economic news that might prompt rate reductions. Either way it looks like markets are just a bit jittery.

By the end of the week  most major markets ended up in positive territory. An interesting standout was global small caps ex-US. Many global small cap managers are underweight the relatively expensive US market and see more value in the rest of the world. The broad-based nature of the recovery, extending beyond just tech, was also encouraging. Year-to-date, Europe, the Nasdaq and S&P 500 are all up around 10%. Japan has surged 20%. The UK, Australia and emerging markets have lagged, likely due to concerns about slowing economic growth and potential recession. But overall, gains have been solid across the board in 2023 so far.

For now, falling interest rate expectations, with the 10-year Treasury yield settling into a 4-4.2% range, are supporting equities. The Fed seems most comfortable at the lower end of that range based on recent comments. Bonds were flat for the week after gains in the prior two weeks. Commodities picked up, with gold rallying 5%. If the positive Chinese data continues, iron ore could be the next commodity to rise.

In Australia, banks and real estate trusts have had a particularly strong start to the year, while materials have lagged. The buy-now-pay-later sector has shown signs of life in recent weeks with Zip reporting encouraging results. 

Key issues to watch in the weeks ahead include the next CPI print and whether last month's inflation uptick proves to be a blip or the start of a new concerning trend. How markets interpret the data could drive near-term volatility and direction.