The Impact of Higher Rates Are Taking Hold
- Muted returns of broad market indexes for the month of April hide the churn underneath as the lagged and variable impact from higher rates take hold.
- Leading Economic Indicators (LEI) show more ardent anticipation of economic contraction. History would suggest four months or more of declining indicators is a warning of a recession. As of March 2023, the LEI index has fallen for 12 consecutive months.
- Volatility in the banking sector may reduce access to capital which may hinder economic growth.
- Our outlook for 2023 surmised the transition away from zero-bound interest rates was likely to be a bumpy one, and our views for 2023 remain unchanged with allocations designed to help weather the potential for volatility.
The sanguine April return of headline indexes hides the churn underneath. Equity and fixed income indexes alike posted modestly positive returns overall with year-to-date trends for 2023 continuing in April; longer duration outperformed shorter duration, credit outperformed Treasuries, international developed equity outperformed the U.S. and emerging and commodities took another step back.