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It’s important to keep in mind that the economy isn’t the market. The Markets Were Miserable Last Year, But That’s Great News The same could be said for any number of speculative asset classes - growth stocks, SPACs, NFTs, etc. Gone are the days of digital assets with no tangible value outperforming solid companies with reliable cash flows. Relative outperformance, albeit still negative, was to be found in previously unloved asset classes like dividend-paying stocks, value stocks and low-beta stocks as well as short-duration bonds. More speculative asset classes, like cryptocurrencies and growth stocks, saw exceptionally steep losses. One silver lining in 2022 is that it helped re-ground investors in the basics: fundamentals matter, predictions should be taken with a healthy dose of skepticism, and prudent planning prevails in the long run. A Silver Lining Playbook for a Sensible Market in 2023 It’s quite possible the Fed’s overly tight monetary policy is inflicting damage somewhere in the financial system, but the nature of the damage won’t become readily apparent for some time. But we suspect that they’ll change course on rates before that happens. There is a very real possibility that the Fed overtightens and pushes the economy into an unnecessary recession. However, the window for the Fed to achieve a soft landing appears to be narrowing rapidly, given the Fed’s hawkish tone and baffling forecasts that ignore November’s decline in inflation. Economic forecasts are notoriously imprecise, but what they lack in precision they typically make up for in directional accuracy. Economists surveyed by Bloomberg forecast a 70% chance of a recession in 2023.

A steeply inverted yield curve, a declining Purchasing Manufacturing Index, the highest mortgage interest rates in 15 years, a strong dollar and slumping overseas growth all suggest a recession. The economy today is now threatened more by recession than inflation. If indeed the issue was too much quantitative easing or too much fiscal stimulus, we would have likely seen inflation come down more by now. However, there’s nothing the Fed can do to influence supply. Every Fed board member, at one time or another, has promised Congress they would not hesitate to hike rates to combat inflation. Part of the Fed’s motivation is political. Auto-Callable Yield Notes Are the Income Stream Nobody’s Talking About