The S&P 500, and with an even greater magnitude the tech-heavy Nasdaq, pulled back for the week as investors reacted to a more aggressive stance from the Federal Reserve. The rebound in growth faded with investors taking a more cautious stance heading into the first week of earnings season Monday. 

Adding to that defensive posture were very hawkish comments from previously dovish Fed Governor Lael Brainard, Federal Open Market Committee minutes that point to Federal Reserve balance sheet reductions of as much as $95 billion per month starting in May, and Deutsche Bank coming out this week as the first major bank to predict a US recession in 2023.

For our portfolios, we have been owning defensive positions going into this period, with the names of Eli Lilly (LLY), Pfizer (PFE), Danaher (DHR), Costco (COST), alongside a good cash position (for one portfolio we're sitting on 35% cash). This week, we initiated a position in Procter & Gamble (PG) to take advantage of its recession-resilient earnings — something investors will pay a premium to own. We view that the turn towards defensive names is just starting, in other words, continue to own, and if possible add to, defensive plays like healthcare and consumer staples.

Under the hood this week, defensive sectors healthcare, energy and consumer staples were the winners. The energy sector, which isn’t usually considered a defensive play, was also up thanks to the ongoing war in Ukraine. In the losing column, technology led to the downside, followed by consumer discretionary and communication services.

Here’s a quick look at some of the broader market measures we like to keep an eye on: The U.S. dollar index has pushed to nearly the 100 level. Gold is holding in the mid-$1,900s region. WTI crude prices pulled back to just below the $100 per barrel level and the yield on the 10-year Treasury has advanced to the 2.7% level.

First quarter earnings season will kick off next week, a period which will definitely be the focus for the market. For the past few weeks, there were no earnings, as a result, market has been moving in a sector-wide fashion based on economic outlooks and perceptions. This upcoming period will be the time for market to solidify/ validate their outlook for the economy (market is forecasting recession, but what will the banks say?), move stocks individually based on their numbers (Citi Group has been going down the same magnitude as Morgan Stanley just because they are financials, but fundamentally they're run so differently), and hopefully companies will be able to deliver good top and bottom line numbers which may help us reach new highs on the market.

Within the portfolio, we will hear from Morgan Stanley (MS) and Wells Fargo (WFC) on Thursday before the opening bell.

As a reminder, next week will be a shorter trading week with markets closed for Good Friday.