Alert

The US economy is doing surprisingly well in recent months and inflation has dropped significantly, though underlying increases in service prices remain stubbornly high. With inflation declining but not yet at the Federal Reserve’s (Fed) 2% target, we expect the Fed will continue to hold rates at current levels through 2023.

Forecasting economic shifts in the future is difficult, but given the resilience in the economy, especially in the labor market, we believe the probability of a soft landing is growing.

View the latest insights on markets and economic trends to help inform your investment strategy:

• Markets
• Economy
• Inflation
• The Fed and the yield curve
• Labor market
• Equities

Moss Adams Wealth Advisors Market View

Here’s our take on the state of the market:

• The Fed may be done with rate hikes but still prepared to stay on a prolonged hawkish hold.
• Inflation will likely continue to decline and in our base case the next Fed move could be a cut in 2024. Federal Reserve Chair Jerome Powell and the Fed signaled intent to keep the threat of rate hikes alive to avoid encouraging markets, especially the stock market, to prematurely price in rate cuts that could reignite inflation expectations.
• Over the mid- to longer term, we’re constructive on both stocks and bonds as the economy normalizes and deflationary tailwinds kick in next year.
• Key risks to equities include a Fed policy error or overtightening, further upward pressure on long yields, and escalations in the conflict in Ukraine or US-China relations.
• Economic strength and labor market trends support a potential softer landing scenario for the US economy, with the probability of recession fading.

Markets

Equity markets were strong out of the gate, however a sharp rise in interest rates curtailed enthusiasm in the latter part of the quarter.

Global equities ended the quarter down a little over 1%, while the S&P 500 corrected by 3.3%. Bonds as measured by the Bloomberg Aggregate Index fell by 3.2%.