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This week, a slew of economic reports, which included inflation data, employment figures and retail sales reports, continue to indicate that the Fed still has a way to go on its quest to tame inflation.
President Biden held his State of the Union Address this week, and while there was a laundry list of proposals, the two that we believe are on investors’ minds are the debt ceiling and the Medicare drug price negotiation.
While we continue to see a daily deluge of headlines highlighting layoffs in the tech space, the rest of U.S. labor market appears fairly resilient. This morning, the Department of Labor released the monthly jobs report and what was quite unexpected was the gain of over 500,000 new jobs. This brought the unemployment rate down to 3.4%, the lowest since May of 1969.
It is no surprise that all eyes are focused on the economic headlines – investors and consumers are searching for tangible pieces of information to guide decision-making and create a logical roadmap for 2023. You don’t need to look far to see the latest news plastered across the media: corporate layoffs.
Bonds made headlines last year for all the wrong reasons. Spurred by dramatic interest rate increases from the Federal Reserve, the U.S. bond market posted its worst annual performance in modern history. As a result of last year’s sell-off in bonds, bond yields have reset to higher levels not seen in over a decade.
Yesterday, we hosted our annual Investment Outlook webinar where we discussed the key themes impacting capital markets and client portfolios in 2023. As we begin the new year, investors remain focused on the Federal Reserve’s inflation-fighting crusade leading us to our title of this year’s outlook, “Slaying the Dragon.”
After being caught flat-footed by inflation last year, the Federal Reserve maintains a steely resolve to ensure that the beginnings of slowing inflation witnessed last fall continue in 2023. Following the stock market’s worst year since 2008 and the worst year ever for bonds, investors are hoping for better days in 2023.
One topic we are consistently asked about is the risk of another housing crisis. Housing is clearly softening in the wake of the increases in interest rates, causing mortgage rates to climb sharply this year and making home ownership unaffordable for many Americans.
It has been a very challenging year for the capital markets. Not only have stocks entered a bear market, but bonds are on pace to have their worst return in more than a century. Typically, bonds have a negative correlation with stocks, and, as such, tend to have strong returns when stocks decline. However, this is the first time in 52 years that stocks and bonds fell in the same year.
This week, all eyes were on the inflation report and the subsequent Federal Reserve announcement a day later. Since these were the last announcements of their kind for 2022, market participants were paying close attention, with the hope of gaining some insight into what the rest of the year might look like for markets.
