2023 began with a hangover of sorts with the same troubles that plagued the market last year. But how has the situation changed year to date? In this inaugural episode in our series quarterly market updates, Brian J. Murphy, CIMA® Senior Vice President, Chief Investment Strategist joins Laurie Haelen, AIF®, Senior Vice President, Director of Wealth Solutions to discuss various aspects of financial markets over the past quarter as well as the current market climate. We’ll address inflation’s impact on the economy, the current labor market, valuations, possible opportunities with fixed income, and the importance of focusing on long term goals during times of market uncertainty.

Equity markets fell last week following a hotter than expected inflation report. The S&P 500 was down over 4% on Tuesday alone, and off 4.7% for the week. Additionally, bond prices fell as yields rose with the 1-year Treasury topping 4% at one point late in the week.

The first half of 2022 proved to be a reminder to investors of the unpredictable nature of investing. While markets weathered the COVID pandemic and its economic and humanitarian damage with surprising resiliency, they seem less able to adapt to the current issues around inflation. Investors certainly knew coming into the year that interest rates would be on the rise in an effort to quell higher prices, but no one anticipated how aggressive the Fed would become after sitting on its hands through 2021. In the Fed’s defense, China’s zero-tolerance policy on COVID has caused continued supply chain issues, and Russia’s invasion of Ukraine sent energy and other commodity prices skyrocketing, both giving inflation an unexpected tailwind. Either way, markets, both equity and fixed income, have not reacted kindly to the new stance and the Fed’s three increases totaling 1.5%. This puts rates well ahead of what was the original year-end estimate, with more rate hikes to come. So where do we go from here?

Equity markets sold-off on Friday, following a disappointing Consumer Price Index (CPI) reading that showed headline inflation picked up last month, and that selloff continued through Monday. CPI was reported at 8.6% year-over-year, higher than last month’s 8.3% increase, and ahead of expectations. Core CPI, which excludes food and energy, came in slightly ahead of estimates at 6.0%, but that was down from 6.2% in April.

Markets rallied following the Fed’s announcement of a 0.50% rate increase on Wednesday, due in part to hearing that larger rate increases were not imminent. But those gains evaporated Thursday as equity markets fell on the realization that the process of normalizing rates is just beginning.

The year 2021 saw a significant rebound in economic growth propelling real GDP above its pre-pandemic level. Equity markets followed along, making new highs throughout the year as corporate earnings continued their recovery. While the final numbers aren’t in yet, the expectation is that U.S. GDP grew at roughly 5.6%1 in 2021 and will likely carry that momentum into the first half of 2022 before slowing down later in the year. Not surprisingly, the primary driver of economic growth was the U.S. consumer who unleashed a wave of spending fueled by government stimulus payments, increased savings rates, and pent-up demand following 2020’s lockdowns.

Equity markets are down again today, after rebounding yesterday from Friday’s steep sell-off. Friday’s 2.5% drop took place as investors dealt with the news of another coronavirus variant labeled Omicron. The variant was originally reported in South Africa and has now been detected in other countries across the globe. This comes as some regions are still dealing with increased infection rates from the Delta variant.

Equities markets continued their rally in the second quarter, with strong performance across the board in both US and international markets. Returns were fueled by the ongoing economic reopening, as many states lifted almost all restrictions following successful vaccination campaigns. With the return to business as usual, first quarter GDP came in at 6.4% and is expected to be as high as 10% in the second quarter. Corporate earnings have rebounded significantly, even outpacing analysts’ expectations. But as quickly as earnings have recovered, equity prices have moved even faster, leaving valuations stretched and well above historical averages.

Ask the Experts is a financial forum for education and advice as CNB’s experts answer your questions on financial topics that interest you.  The experts of this show featured Jason W. Fitzgerald, CFP®, Senior Vice President, Senior Wealth Advisor

There is little doubt that 2020 will go down in history as one of the most unusual years that we have experienced. The year began with the underpinnings of the economy appearing strong and a good deal of optimism relative to the markets, buoyed by strong performance in 2019. As we came into the year, forecasts were for solid earnings growth based on record low unemployment and a strong consumer. Although valuations were somewhat stretched after great returns in 2019, market expectations were for solid gains as returns aligned with earnings growth.

From a market perspective, 2020 has certainly seen its share of ups and downs. Even an average year in the market can seem like a roller coaster, but this year has been an especially wild ride. Adding significant anxiety to

The experts of this show featured Stephen Krauss, Vice President, Wealth Advisor, and Brian Murphy, Vice President, Senior Investment Strategist, from CNB Wealth Management.