“Flight to Safety”

Athos Capital Advisors – Monthly Newsletter

March 2023


The first quarter of 2023 was an eventful start to the year, with volatility across asset classes and the collapse of the 17th largest bank in America.  The S&P 500 ended the quarter up 7.4%, propped up almost entirely by the top 10 performing stocks.  Take out the top 10 and the total return of the remaining 490 stocks added up to only 0.7%.  One of the main points I will try and make in the charts below is that this year’s stock market rally is masking trouble below, within and across the market.  If you look under the hood, and across asset classes, the strong performance in the S&P 500 masks broad-based weakness and is ultimately the result of a flight to safety, quality trade that saw capital flow into safe havens in the wake of the SVB collapse.

SVB collapse sparks a dash to Safe Havens

  • The collapse of SVB sparked a rush to safe havens during March after the markets narrowly averted a larger financial crisis from developing.  
  • Investors responded by buying gold, US Treasuries, and mega cap tech stocks
  • Meanwhile lower quality segments of the stock market have languished.  Small and Micro-cap stocks and most cyclical sectors continue to hover near their lows of this cycle and continue to move sideways
  • Additionally, bank stocks have failed to mount any meaningful rally after steep declines suggesting the issues plaguing the banking sector remain
    • Two fundamental headwinds remain for banks
      • The risk-reward of keeping your money in a regional bank as opposed to a large systemically important bank is very poor – capital should continue to flow out of regional banks and into the largest banks
      • Secondly, money continues to flow out of banks because the rate of interest is so much higher elsewhere.  Banks haven’t passed along the increase in interest rates to their clients and clients can get 4-5% on money market accounts.  This is something we started doing for our clients nearly 7 months ago when it became clear interest rates were going to rise significantly.

S&P 500 Q1 2023 Attribution

  • The Top 10 performing stocks in the S&P 500 drove nearly all of the market’s Q1 return 
  • Apple, Microsoft, and NVIDIA alone accounted for nearly half of the S&P 500’s Q1 returns
  • Such narrow leadership further confirms our view that this is likely another bear market rally.  We would look for much broader market strength for confirmation of a new bull market.
  • This also confirms why it is always important to position equity allocations toward high quality, blue chip stocks with balance sheet strength and recurring cash flows 

Interest rate expectations

  • Looking at interest rates and market expectations, the market is now pricing in very little in the way of further rate hikes.  Current market expectations for the Fed Funds rate have the Fed hiking 25 bps at the next meeting in May and then pausing.
  • As the chart below shows, this has been the fastest pace of rate hikes in over 40 years.

Stress in the Bond market

  • The bond market continues to price in a recession and volatility across the bond market remains high as shown by the MOVE Index (a measure of expected bond market volatility) remaining very elevated
  • The safest parts of the bond market (US Treasuries) have rallied – another sign of the “Flight to Safety” we have been observing. 
  • Spreads on CMBS (Commercial Mortgage Backed Securities) have widened to their widest level since the March 2020 lows.  This is another area of future stress that could cause volatility to return to markets as many commercial property owners are forced to refinance at much higher rates. 

Stocks and Bonds Remain Highly Correlated

  • Stocks and Bonds remain highly correlated – a big departure from the past 15 years where investors were able to balance their equity allocations with the safety and stability of bonds.
  • Alternative investments remain critical to countering this new dynamic.  Athos Capital’s suite of alternative investments continue to perform strongly, offering high levels of income, low volatility, and low correlations to stocks and bonds.

Interval Funds Continue to Perform

  • The Athos Capital Advisors Interval Funds continue to perform in a tough environment, offering low volatility and high income.

What does it all mean?

  • Be patient – there will be opportunities
  • Volatility is going to remain high – things are breaking and more will come
  • Be defensive, be conservative, be ready to buy when there is stress in the markets
  • Keep your buy list ready and be prepared to dollar cost average into high quality equities

As always, I look forward to hearing from you.  Never hesitate to reach out.


Henry A. Miketa

President & Founder







Two charts that show how terrible bond investing has been for the past two years