Matt Freund, CFA, Michael Kassab, CFA
The quarter began in a fairly typical way. Last year’s winners (primarily value stocks) started off well but quickly weakened as lower energy prices and global economic worries took center stage. While the economy continued to show surprising momentum, fears of an overly aggressive Federal Reserve dominated financial headlines. Large-cap growth stocks, which underperformed in 2022, gained back some of their losses as margin improvement and efficiency themes replaced growth at any price.
March was a game changer. The sudden and unexpected collapse of Silicon Valley Bank caught markets off guard, and fears quickly spread globally. January’s rate hike expectations were quickly replaced by fears of tighter lending standards and a broad collapse in market liquidity. Interest rates fell as markets anticipated a Fed rescue (after all, in 2008 the Fed increased liquidity and lowered rates to unprecedented levels). Banks quickly joined energy as market underperformers.
Growth stocks, on the other hand, continued to outperform. As the global growth outlook grew more tenuous, investors gained a renewed appreciation for the defensive characteristics of profitable large-cap growth stocks. While smaller, unprofitable companies (many of whom were customers of Silicon Valley Bank) continued to struggle, companies with positive earnings and cash flow, strong balance sheets and well-defined growth prospects were rewarded as safe havens. Lower rates also helped as valuations were seen as more reasonable. By the end of the quarter, most of the overall market’s positive performance could be attributed to the largest growth names.
Looking ahead, a major focal point will be whether the recent developments in the banking sector will precipitate a further tightening in lending standards, in an effort by the banks to take a more conservative approach with their balance sheets. Any such action would weigh negatively on business and consumer spending and raise the prospects for an economic slowdown in the second half of the year.
In any event, it is clear the Fed is largely done with its rate hiking cycle, and we believe it has the necessary tools to fight any future bank runs should they arise. Inflation should fall through the summer months, and a debt ceiling impasse, while headline grabbing, should not prove to be a long-term negative for the markets. As investors turn their attention back to corporate fundamentals, we believe companies with solid balance sheets and strong cash flows can benefit from the tighter financial conditions that pressure their weaker peers. Attractive growth opportunities can be found in many places, and we believe the trend toward services will continue and travel and leisure sectors will benefit as a result. We believe the current rate environment, coupled with moderating inflation and reasonable global growth, provides a solid backdrop for secular growth companies.
Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-800-582-6959. Read it carefully before investing.
Diversification and asset allocation do not guarantee a profit or protect against a loss. Alternative strategies entail added risks and may not be appropriate for all investors. Indexes are unmanaged, not available for direct investment and do not include fees and expenses.
Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be appropriate for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
Important Risk Information. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
The principal risks of investing in the Calamos Growth Fund include: equity securities risk consisting of market prices declining in general, growth stock risk consisting of potential increased volatility due to securities trading at higher multiples, mid-sized company risk, foreign securities risk and portfolio selection risk.
Foreign security risk: As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.