Investment Commentary – July 2023

July 5, 2023

All eyes have been on the Federal Reserve, which is walking a precarious tightrope between slowing economic growth and easing, but still-high, inflation. Investors have pored over every piece of economic data trying to determine what it will mean for the Fed’s thinking with regards to interest rates. The key question remains: how high will rates need to go and for how long will the Fed need to keep them there to bring inflation back down to the Fed’s 2% target?

Heading into 2023, uncertainty was elevated, but if anything, most of the surprises have been to the upside. Economic growth has moderated, but the resiliency of U.S. consumers and the tight job market has kept recessionary fears from materializing beyond what longtime market observer Ed Yardeni has dubbed a “rolling” recession, which has seen economic contraction work its way through specific regions and industries rather than the broader economy. Inflation is trending down, and the stock market has seen a solid rebound. The S&P 500 is up 15.9% year to date, and despite ongoing volatility in the bond market, nearly every sub-class in the fixed income arena has seen positive returns. This is not to say, however, that we are out of the woods.

For an analysis of how the Fed and inflation have impacted the economy and the markets this year, as well as our expectations for the remainder of the year, please read our 2023 Mid-Year Investment Commentary.