Third Quarter 2022 Market Newsletter

Investment Management, Markets

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EXECUTIVE SUMMARY

Stocks and bonds sold off in the third quarter of 2022 because of sticky inflation and aggressive interest rate hikes by the Federal Reserve.

There are signs that inflation is moderating – for example supply chain constraints are easing, commodity prices and home prices are falling.

The Federal Reserve looks at the backward-looking Consumer Price Index (CPI) to make decisions about interest rate hikes and is expected to continue its course.

The economy is showing signs of slowing down and the probability of a recession has increased. However, the employment situation is strong, and the cyclical portions of the economy are not elevated which points to a mild recession if one were to happen.

Corporate earnings growth is moderating but stocks are cheaper than their historical average. However, if earnings estimates get slashed further there could be further decline in equity prices.

Historically, stocks have done well after recessions when investor sentiment is low. This supports the view that recessions are an opportunity to invest.

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