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Introduction: Markets Looking Up
Although headlines are full of short-term gloomy news on markets, we wanted to shed some light on the year-to-date performance of both equity & bond markets. As of Monday morning, the S&P 500 is up more than 6% year-to-date, and the majority of bond funds are up more than 2%. There are two primary drivers for this at the moment:
- Inflation is coming down; the Federal Reserve is acknowledging this in its recent commentary (this is supporting both bond and equity markets through lower revised interest rate expectations).
- The worrying expectations of a recession are now slowly dissipating. Economic data is still appearing very positive: the unemployment rate is the lowest it's been in the US in more than 40 years, most forecasts predict that the S&P 500 will have positive growth in operating earnings for 2023 & 2024, and even the mention of the word “recession” during quarterly earnings calls has dropped dramatically:
Conclusion: Markets Looking Up
All this is excellent news for both bond and equity markets. The inflation data provides relief around further, more aggressive interest rate hikes (above what is already expected). Also, the positive economic data creates an environment where businesses can remain healthy through increased earnings.
In addition to the positive news, the federal reserve has also returned to the point of strength with its high benchmark interest rate, which it can reduce in the future should we face adverse market conditions.
