October Market Insight
Following a July rally in both risk-oriented and high-quality assets, performance across financial markets in August reverted to the general theme in place throughout most of 2022, with negative performance experienced in most major asset classes and categories. Hopes of a Federal Reserve (Fed) pivot from hawkish to dovish were dashed in a brief speech by Chair Jerome Powell at the Fed’s annual Jackson Hole Economic Symposium, in which the chairman warned of looming “pain” due to the ongoing tightening of monetary conditions. This was reiterated during the September Federal Reserve meeting where they raised rates another 75 bps to a range between 3.00 - 3.25%. Another 100 bps of hikes are now priced into market expectations for the rest of the year, which would take the rate above the 4% threshold. Bond market performance was overwhelmingly negative on the month, as the ongoing rise of interest rates applied headwinds to the asset class. While it is clear the threats imposed by inflation required attention, it is also becoming clear that the Fed solution may create alternative problems. Investors have expressed worry that the solution may be worse than the problem.