Week In Review 1/28/2023: The view from here – long-term optimism with steady volatility

Week In Review – Friday, January 27, 2023

The view from here – long-term optimism with steady volatility

While 2022 was the year of rising interest rates, with the Federal Reserve raising rates by a cumulative 425 basis points from near zero to combat inflation, 2023 is seen as the year that the economic impact of higher rates comes home to roost in the economy. This week saw the release of U.S. gross domestic product (GDP) for the last quarter of 2022 which showed the economy grew at an annualized pace of 2.9% during the period, faster than the consensus forecast. While decelerating from the 3.2% pace of the prior quarter, the takeaway is that the U.S. economy is not likely yet experiencing a much anticipated recession.

Other data points such as the Conference Board Leading Economic Index (LEI) are experiencing a steep rate of decline and have fallen to a level consistent with a signal of recession.

U.S. Leading Economic Index falls to a level consistent with recession signals

U.S. Leading Economic Index (LEI)

Other data supporting recession include consumer spending on goods declining, manufacturing slowing, residential investment plunging, and mounting announcements of corporate lay-offs, particularly among technology companies.

While the dramatic downturn in the LEI data appears ominous, troughing in the Leading Economic Index coupled with recession and declining payrolls have been good for financial markets returns when looking out 12 months. The counterintuitive performance of markets is likely linked to markets being forward-looking and an eventual economic slump. Subsequently, recovery is discounted before the actual occurrence.

Important Disclosures:

The preceding information is for general educational purposes only. It is not intended to be investment advice, and is not specific to any individual’s personal situation. Any decision about investing should be undertaken only after careful consideration of the investment’s risks, costs, liquidity or lack thereof, and the investor’s timeframe.

Investment Advice offered through Pallas Capital Advisors, LLC, a registered investment advisor.Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product referred to directly or indirectly in this newsletter will be profitable, or equal any corresponding indicated historical performance level(s)
Investment Advice offered through Pallas Capital Advisors, LLC, a registered investment advisor.

Mark-Bogar

Mark A. Bogar, CFA®, CAIA®
Chief Investment Officer
Pallas Capital Advisors

Stephen Kylander

Stephen Kylander
Senior Portfolio Manager
Pallas Capital Advisors

The information contained herein is for informational purposes only, is not personalized investment advice and should not be construed as a recommendation to purchase or sell any particular security, sector or strategy to any individual person or entity. The decision to review or consider the purchase or sale of any security, sector or strategy mentioned should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional. Past performance should not be considered as an indicator of future results.

Investment Advice offered through Pallas Capital Advisors LLC, a registered investment advisor.

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