Please find the next blog in our monthly series that provides a snapshot of the markets and the state of the economy.
- Inflation surprised to the upside with headline CPI rising to 8.6%; the Fed, moving aggressively in response, raised interest rates by 75 bps
- Higher prices are taking their toll on consumers as sentiment fell to a record low and real consumer spending fell 0.4%
- Market volatility was higher as bond yields and equity markets fluctuated with the shifting outlook around inflation, recession, and the Fed’s rate path
- Bonds outperform equities but still negative for the month
- First half returns sharply down across equities and bonds
Asset Class Valuations
- Equity valuations still attractive over bonds
- Equity valuations favor US Small Caps
- Equities, H.Y. bonds, R.E. provide an inflation hedge
Rate Expectations Soar, Become More Frontloaded
Key Risk Factors We Are Watching
- Inflation and pace of consumer spending
- Tightening financial conditions
- Downward revisions to corporate earnings
- Ongoing geopolitical tensions
- Coronavirus variants
- Regulatory policy shifts (US and China in particular)
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