Following a January rally, markets slumped in February after new reports signaled stubborn strength in the U.S. economy and job market. Investors hoping to see slower, smaller interest rate hikes had their hopes dashed when Fed Chair Jerome Powell indicated that additional tightening was likely necessary. Uncertainty deepened, even as the impacts of rate hikes began gathering like clouds over the economy, notably in construction, commercial real estate, and by early March, banking. We’ll look at the Fed’s tightrope act followed by a brief review of February markets.

After a disappointing 2022, investors searched for rays of economic sunshine in January. And they got what they wanted when new data showed cooling inflation and better than expected growth in the final quarter of 2022, despite the pressure of high interest rates and widespread fears of a looming recession.

The news drove markets higher on hopes that the Federal Reserve would scale back or end interest rate increases earlier than expected. Not so fast, warned Chairman Jay Powell, noting that the Fed is still very much in a wait-and-see mode and willing to move aggressively if needed. Still, there’s reason to cheer declining inflation and rising rates. We’ll offer our perspective following a look at January numbers.

This month we begin with a wrap-up of 2022, a painful year for investors. Then we introduce you to a hidden risk of which you may be unaware—the precarious condition of private equity markets. “There is no good idea that too much money can’t destroy,” wrote Ruchir Sharma in a December opinion piece in the Financial Times. We’ll lift the lid on the private equity engine to take a look inside. First, a look at the numbers.

It has been one of those years with no place to hide; a bad-news year for stock investors, bond investors, and just about anyone invested in crypto. But except for crypto, where problems continue to deepen, November delivered a measure of hope to those who held steady. Stocks and commodities rose for the second month, and the bond market reacted positively to news of lessening inflation. Not only that, the Dow managed to climb out of bear territory. 

A soaring market is not always enough to erase fear. We witnessed that earlier this month, when a stupendous one-day rally raised the S&P 500 by over 800 points but did little to quell investors’ concerns about inflation, interest rates, or recession. We live in highly unpredictable times. With slurries of unsettling news flowing into the markets from all directions, what can we read in the turbulence?

There’s no way to sugarcoat this past quarter. Markets finished the month uniformly lower and ended September in retreat. In fact, it was the worst monthly drop since March 2020, when the rapid spread of Covid sent the economy into a full shutdown. Despite gloom in the markets, life was its usual mixed bag including moments of hope and joy.

In August, stocks slumped and global bonds declined as tighter central bank policy, recession fears and high inflation spooked investors. July’s rally fizzled early in the month, and the S&P 500 ended August down 4%. Meanwhile, the U.S. dollar surged to a nearly 20-year high against a basket of global currencies. What does this steep climb portend for the global economy and your portfolio?

The economy seemed to be moving in opposite directions in July. While economists were debating whether we had entered a recession, employers were filling jobs at a blistering pace. By the end of the month, with job growth more than double the forecasts, investors put recession fears on hold to worry anew about inflation. “Markets are a very complicated Impressionist painting,” Pimco CEO Emmanuel Roman said in a Financial Times interview (15-July). “Different pieces contribute to the story.” Only, this story isn’t following any previous script.  

Markets tumbled and then ended June 2022 with a second consecutive quarterly loss. There was negative news on every front: surging inflation, hawkish central banks, rising interest rates, record-low U.S. consumer confidence and slowing economic growth. Little wonder that performance was slammed across the board. Most stock indices logged double-digit Q2 declines, while bond losses varied depending on sector and maturity.

It’s been a while, but bears are on the prowl again, showing up with increasing frequency in financial news. Through mid-May, the S&P 500 index was down for seven consecutive weeks, the longest losing streak since the dot-com bubble burst two decades ago. Stocks briefly descended into dreaded bear market territory, but strong gains in the week ending 27-May created some breathing room. The S&P 500 Index finished May with relatively flat returns. Still, anxiety was palpable as investors awaited the next inflation report.