Overview

• The underlying fundamentals of the U.S. economy remain healthy enough to overcome the friction associated with high inflation.
• With an estimated $2 trillion-plus in incremental savings, consumption should remain supportive of future economic activity.
• U.S. equities should regain their footing, although slipping earnings growth because of margin pressures could weigh on prices.
• Geopolitical risks remain: Russia, China/Taiwan sovereignty, Iran nuclearization, cyber-attack—any of these could emerge as a country-specific or regional existential threat.
• Interest rates are higher in nearly every developed market around the world, and risk-taking sentiment has been consistently poor, leading credit-sensitive assets to underperform.
• Long-term interest rates are likely to decline, as the fixed income markets price in the probability of economic slowing and future Fed rate cuts.
• Healthy balance sheets across much of the investment-grade and high-yield corporate world continue to offer fundamental protection against a deteriorating economic climate.
• Two areas of fixed income experienced notable spread widening and now appear attractively valued: Preferred securities and tax-exempt municipal bonds.

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