Please find the next blog in our monthly series that provides a snapshot of the markets and the state of the economy.
- Concerns over the US debt ceiling dominated headlines, though a deal was in place and advancing through Congress by month end
- The US Fed increased the policy rate by 25 bps, while messaging from Fed Chairman Powell suggested the potential for a pause ahead
- CPI fell to an annual increase of 4.9%, marginally less than estimated, however core PCE, the Fed’s preferred gauge, rose from 4.6% to 4.7%
- Most equity markets fell; mega-cap tech outperformed
- Rising rates hurt bond returns
Asset Class Valuations
- Equities currently priced for a mild recession
- Favor core bonds (US treasuries) over high yield
- Cash remains attractive with yields around 5%
Key Risk Factors We Are Watching
- Inflation and labor market data
- Tightening financial conditions
- Fed policy mistake
- Downward revisions to corporate earnings
- Ongoing geopolitical tensions
- Weaker than expected China recovery
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