
Vice President/Trust Investment Officer
Total Returns (%) as of February 28, 2023
Fixed Income | YTD | 1 Mo | 3 Mo | 1 Yr | 3 Yrs | 5 Yrs | 10 Yrs |
---|---|---|---|---|---|---|---|
U.S Aggregate | 0.41 | -2.59 | -0.04 |
-9.72 |
-3.77 |
0.53 |
112 |
High Yield |
2.47 |
-1.29 |
1.83 |
-5.46 |
1.34 |
2.87 |
4.09 |
Global |
-0.71 |
-4.11 |
-0.46 |
-19.79 |
-8.49 |
-4.83 |
-2.01 |
Equities | |||||||
U.S. Large Cap |
3.69 |
-2.44 |
-2.88 |
-7.69 |
12.15 |
8.82 |
12.25 |
U.S. Small Cap |
7.89 |
-1.69 |
0.89 |
-6.02 |
10.08 |
6.01 |
9.06 |
Developed International |
5.84 |
-2.09 |
5.93 |
-3.14 |
6.84 |
2.64 |
4.83 |
Emerging Markets |
0.90 |
-6.48 |
-0.52 |
-15.28 |
0.97 |
-1.87 |
2.07 |
February is probably best known for Valentine’s Day, a holiday when people commonly exchange greeting cards and gifts to express their affection. Nonetheless, this February felt more like a scene from the Peanuts (when Lucy pulled the football away from Charlie Brown) as good economic news initially enticed investors only to later upend them. Positivity in the economy is typically a tailwind for the markets. However, the concern that inflation may remain higher for longer, and the Federal Reserve (Fed) may need to raise rates more than expected, could lead to a hard landing for the U.S. economy.
Recently, the Fed submitted its semi-annual monetary report to Congress. In the report they indicated that inflation remains well above the Federal Open Market Committee’s (FOMC) objective of 2% and bringing inflation back down will likely require a period of below-trend growth, along with some softening of the labor market. The Fed reiterated its commitment to reducing inflation.
According to the CME FedWatch Tool, there is a 100% probability that the Fed will raise rates by at least 25 basis points in March. Expectations for the terminal rate rose to approximately 5.5% and the likelihood of a rate cut later this year inched lower. These assumptions encouraged the 10-year U.S. Treasury yield to climb higher in February and provoked equities and fixed income prices to fall (bond prices are inversely related to interest rates).
So far this year, the economy appears to be strong-willed, despite a Fed that is determined to slow demand until inflation has normalized. The unemployment rate is low, and consumer spending remains healthy. Even though some companies have begun to reduce staff, it is still easy to find employment opportunities elsewhere. This year will likely be one of volatility, as the Fed and U.S. economy test each other’s strength and endurance.