Ultimately, the environment of higher rates, and more attractive yields should be considered a positive. Yes, stock returns may come down, but investors should still expect a solid return in the long run.

In many ways, the 2023 outlook is as cloudy now as it was when the year started. Whether the US economy can evade a recession this year remains total guesswork. Please enjoy our latest review of markets.

Despite an abundance of recession headlines in 2022, the U.S. economy has managed to evade one thus far and is expected to have grown just under 2% in 2022. As we look to 2023, worry has shifted to recession.

Bear markets, as unpleasant as they are, exist for a reason – to transfer the leadership of one group of stocks to the next. The landscape is evolving, and once we are on the other side, leadership will certainly look different.

Markets are at a crossroads. After a couple of years of pandemic-induced stimulus, leading to overinflated markets at the end of ‘21, equity markets have gone from overvalued to undervalued and today sit near historical norms. Many questions linger as we approach 2023.

Therein lies today’s debate – is October’s rally a simple bear market trap, or is it the start of something more? As usual, there are conflicting storylines. We also take a look at upcoming midterms and what that means for your portfolio.

I would like you all to meet a famous character named Mr. Market – your mercurial manic-depressive friend. The allegorical Mr. Market was first introduced to the world in Graham’s 1949 book The Intelligent Investor to explain stock market fluctuations.

As we explore and evaluate markets and opportunities right now, I find myself using the lens of perspective as a helpful mechanism for clarifying what we are going through, and what we, as investors, should be considering as we look forward.

For investors, 2022 has felt like a battle against King Arthur. Add it all up, and investors have been battered and bruised through the first half of ’22. Investors have had few places to hide with stocks and bonds declining together. Where do markets go from here?

As we’ve discussed in previous updates, we never felt inflation was transitory because money supply was increasing too quickly for inflation to be transitory. As the cobra story illustrates, it has always been about incentives. Let me try and explain.

Surging interest rates and persistent inflation put sharp downward pressure on bond markets, which are on track for one of their worst years ever, and on U.S. equity markets, which had their worst first half of a year since 1970.

May returns belie an otherwise volatile month that saw stocks fall into bear market territory (down 20%) before a sharp rally to close the month. We remain defensive as we enter the “mid term” summer months.

There are several counterintuitive and contrasting data points happening simultaneously – today’s strong job number is another strong data point in a weak environment. We will be paying close attention to upcoming economic data.

We do not believe that a recession is imminent. However, looking out over the next several months, we do see risks skewed to the downside, as the Fed continues to tighten and inflation weighs on consumer spending.

Investors should continue to brace for more volatility in April and May. The market is digesting quite a bit (inflation, rates, Russia, midterms), and it will take some time for these concerns to subside.

In short, at least within U.S. markets, volatility has increased, but not markedly. Said another way, the magnitude of movements on a daily basis is higher, but not that much higher, and certainly nowhere near where we were during the COVID-19 selloff of 2020.

Global equity markets quickly declined as volatility spiked, oil prices shot higher, and the odds of European recession increased dramatically. Markets hate uncertainty, and at this moment, uncertainly is plentiful.

With the holidays over, and our “diets” kicking into gear, investors faced a grueling January. The usually bullish month produced flustered markets, Omicron-related sick days, and a couple Nor’easters here on the East Coast for extra fun.

Despite the emergence of two fast-spreading COVID-19 variants, inflation that has proven more “sticky,” and central banks beginning to remove monetary accommodation, U.S. equities posted a third-straight year of strong double-digit gains.

If anything, calendar year 2021, as with 2020, was not dull. Contested elections, COVID’s persistency, supply chain issues, and inflation galvanized our attention but did little to deter rallying markets.