4th Quarter 2022 Client Letter

Markets Key in on Slowing Inflation; Fed Continues to Warn of More/Longer Tightening. Outlook: Cautiously Optimistic About 2023

I hope you and your families enjoyed happy holidays and we wish you a happy, healthy and prosperous 2023. I will try to be brief but 2022 was much more volatile than we anticipated at the beginning of the year and there is much to review. 2022 ended up being the worst year for balanced portfolios in over 50 years. The enthusiasm we feel for the “reset” in stock and bond valuations is somewhat tempered by our belief that the Fed will tend to be more aggressive than the market thinks, which will likely mean higher rates for longer.

Financial markets and the Federal Reserve seemed to be at odds in the fourth quarter. The Fed and other central banks continued to raise interest rates aggressively and tried to convince investors that they will keep interest rates higher for longer due to the high level of inflation. Despite this, stock and bond markets delivered positive returns for the last quarter as investors focused on the deceleration in the inflation data, rather than the level. Investors seem to believe that, despite what they are saying, central banks will be able to pause, and perhaps begin lowering rates in 2023.

We tend to agree that inflation is cresting, particularly as energy prices decline and large companies begin to shed jobs. In our view, these are all encouraging signs that the Fed and its peers are making headway in their attempts to fight inflation. However, we also believe the Fed’s insistence that the fight against inflation will take longer and be fiercer than most investors are expecting.

Against this backdrop, we see two ways that markets could continue to rise from here. The most likely upside scenario we see is that earnings and the economy remain resilient even as the Fed continues its current path. The second is that Q1 inflation data strongly decelerates, allowing Fed Policy to be less contractionary, a scenario we view as less likely. On the other hand, either a large breakdown in earnings or a re-acceleration of inflation, which would force the Fed to accelerate rate hikes, would lead to more market volatility. We believe these negative scenarios are less likely, future earnings announcements and inflation data are critical inputs moving forward.

I believe every solid relationship should center on open communication. You have several options to access the information you need to know about your portfolio, my firm, Raymond James and the financial markets. In addition to our in-person meetings and one-on-one calls, we'll also communicate with you through other channels, such as our website, newsletters and social media. You have already been receiving regular updates and emails from me. These communications are designed to provide you with insight into the ever-evolving financial markets and help build the confidence that comes from working with an experienced advisory team. If you haven't already done so, I encourage you to go to my website to learn more about my firm and access some of the recent research and articles available to you. I also utilize social media channels such as Linkedln. If you already have an account on Linkedln consider following me. These channels provide an excellent way for me to keep you up to date with relevant, timely news. Please let me know how you prefer to receive important communications and how frequently. We'll do our best to deliver. Guiding you toward financial independence is a collaborative process, and I hope you feel comfortable reaching out to me whenever you have questions, concerns or even new ideas to help me better serve you.

Elliot Weissmark, CFP®, CPFA
Senior Vice President, Investments

Any opinion are those of Elliot Weissmark, CFP @, CPFA and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.