Market Update

It has been a summer of volatility as markets officially plunged into bear territory on June 10 after a hotter-than-expected inflation report. On June 15, U.S. Federal Reserve Chairman Jerome Powell announced a 75 basis points (bps) increase to the benchmark interest rate – the largest since 1994. The Fed had originally telegraphed a series of 50 bps hikes this summer but emphasized it would base decisions on market conditions. Continued inflationary pressures, Powell said, will likely necessitate more rate hikes.

“The Fed has changed its tone, taking a more assertive policy stance regarding its commitment to bring inflation down to its 2% target,” said Chief Economist Eugenio J. Alemán, Ph.D. “However, the new policy stance may increase the probability of a recession in late 2023.”

With volatility expected to stick around through the summer, Chief Investment Officer Larry Adam, from Raymond James, has three key points investors should bear in mind:

  • We are not in a recession now: Overall, consumer spending trends remain positive, and the summer travel season is going strong.
  • No quick fix: “While we realize it is hard to be patient when you’re watching your investments fluctuate in value, this is, unfortunately, a situation that will require time,” Adam said.
  • Markets need a mood shift: Negative sentiment is weighing on markets as gas prices rise, but we must avoid talking ourselves into a recession.

During times of uncertainty, it can be hard to imagine reaching the other side and getting back to more favorable market conditions. “Two years ago, many experts thought that we’d be stuck in the world of COVID-19 lockdowns forever – but we aren’t,” Adam observed. Investors tend to extrapolate the current environment indefinitely and miss the pivot in sentiment, trends and economic conditions. That is why it is so important to take a step back and look at where these dynamics are likely to go.

“While recessionary risks are growing, a recession is not our base case over the next 12 months,” said Adam.

We’re here to provide you not only with insight but also with advice on how we can help manage the effects of – and capitalize upon – the markets’ movements. We are watching the markets closely and will reach out should anything require immediate action. In the meantime, please feel free to get in touch if you’d like additional perspective or guidance.

 

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities. Be sure to contact your financial advisor regarding your particular situation before making any investment or withdrawal decision. Material prepared by Raymond James for use by its advisors.

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