Please find the next blog in our monthly series that provides a snapshot of the markets and the state of the economy.
- The Fed increased rates by another 50 bps, as expected, but with a dot plot indicating a higher terminal rate before an expected pause
- Economic data weakened, with a decline in retail sales and the first contraction in the US manufacturing PMI since the start of the pandemic
- US inflation continued to slow, surprising to the downside, while the labor market remained strong with unemployment at 3.5%
- Muni bonds, non-US developed equity outperformed in December
- 2022 saw steep declines across asset classes
Asset Class Valuations
- Equity valuations improved as prices fell in 2022
- Favor investment grade credit over high yield
- Cash yields remain attractive
Fed Not Done as ‘Dots’ Forecast a Higher Peak
Key Risk Factors We Are Watching
- Inflation and labor market data
- Tightening financial conditions
- Downward revisions to corporate earnings
- Ongoing geopolitical tensions
- Regulatory policy shifts (US and China in particular)
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