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Client Conversations with Wealth Management

Many clients have questions about how today's market conditions will affect their finances and investments. At CBT, we continue to evaluate the market to give sound advice to our clients. Take a look at a few common conversations we've been recently:

Interest Rates - Where are interest rates headed?

The Federal Reserve has indicated that the end of rate hikes is near. The market is expecting, at most, one or two more 0.25% increases in the Fed Funds rate over the remainder of the year. This would position money market rates around 5.25-5.50%. The yield curve remains inverted, with short term rates significantly higher than longer rates. The 10-year US Treasury peaked in October 2022 (stocks also bottomed) around 4.25% and the rate is down year to date. The 5-year US Treasury rate is flat year to date. The market appears to be predicting that the battle is close to over with inflation. 

Inflation – The peak is in, what’s next?

Inflation was at its highest level in four decades when the June 2022 report showed CPI at 9.1%. Inflation has peaked and is on a relatively rapid decline. June CPI came in at 2.97%, the lowest rate in two years. It appears that the worst is behind us in terms of accelerated price increases. The market will begin pivoting to a new “thing” to fear. Some analysts are pointing towards corporate profit margins, recession, and geopolitical issues (Russia/Ukraine and China/Taiwan).

The Economy – soft landing?

The S&P 500 was up approximately 7% in the 4th quarter of 2022. It repeated that return in both the 1st and 2nd quarters of this year. This market behavior is not typically seen in bear markets. Equity fund positioning amongst hedge funds and institutional money managers remain near the low end of the past two decades. There may be a lot of catch up needed by these groups to achieve their desired returns.

The Fed has yet to take a victory lap regarding their role in bringing down inflation. Their expectation for large job losses did not occur and supply chains have received enough time to get back to normal. The money supply has dropped at the fastest rate since the Great Depression. Some may point to the Fed or a specific statistic to make their case, our belief is that no one piece is responsible. Without a material increase in the unemployment rate, a recession occurring is highly unlikely as no recession has occurred with the labor market the US is currently experiencing.

Despite all of the headlines discussed above, your financial goals should remain as the most important factor to consider when looking at your investments. If you would like to know more about how we are adapting to the current market conditions, or would like to discuss your individual situation, please reach out your CBT Wealth Management experts at 319.291.2000.

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