Trust Investment Management
Autumn’s beauty was on full display as the foliage changed in October. While Mother Nature gave us a final burst of many colors before the leaves fell in droves, the markets were simply red. While the first half of the year experienced a robust rally, the last three months have been difficult for both equity and bond markets. The Fed is expected to keep rates higher for longer as inflation remains elevated, and the U.S. economy continued showing signs of strength. These factors contributed to the rise in intermediate and long-term yields which pressured equities and bonds to fall (bond yields and prices are inversely related).
As expected, the Federal Open Market Committee (FOMC) left rates unchanged at its November meeting. The decision was unanimous. This was the second meeting that the FOMC did not raise rates. The FOMC policy statement highlighted that recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated. At a press conference, Fed Chair Jerome Powell did not seem satisfied with the progress being made with bringing inflation back to their target. However, he did acknowledge that inflation was moderating, and the full effects of previous rate increases have not been fully felt yet. The CME FedWatch Tool projects that it is likely the Fed has finished raising rates and could begin lowering rates as early as May 2024.
The International Monetary Fund (IMF) updated their World Economic Outlook in October. They project that world output will be 3% in 2023 (2.1% for the U.S), and 2.9% in 2024 (1.5% for the U.S.). The IMF commented that risks to the outlook are more balanced than they were six months ago, and the likelihood of a hard landing has receded, but the balance of risks to global growth remains tilted to the downside.
The process of getting back to normal since the COVID-19 crisis began has been a difficult one in many ways. While October was another uneasy and volatile month, the world continues to navigate back to a more normalized environment. It is also important to note that investors who stay the course are typically better off in the long run.