Market Extra: This isn’t a ‘close your eyes and buy anything’ kind of market

by | Nov 22, 2022 | Stock Market

Bond portfolios have fallen deeply in the red this year as the Federal Reserve has jacked up rates to fight stubbornly high inflation, spurring an epic repricing in swaths of the $53 trillion U.S. bond market. Debt no longer is cheap for U.S. households, businesses or the government to borrow. And without the jet fuel of easy credit, many economists and chief executives also think a recession could lurk around the corner.

The pain to portfolios has been a bitter pill for investors to swallow in 2022, particularly with Goldman Sachs equity analysts forecasting this week that the S&P 500
will end next year at 4,000, or roughly flat from current levels since “the cost of money is no longer next to nothing.” On the flip side, however, higher Fed rates also mean investors finally can earn a return by serving as creditors again, with bonds now kicking off some of the highest yields since the wake of the 2007-2008 global financial crisis. A big question heading into next year is whether higher yields should be viewed as red flag, a sign of more carnage to come as borrowers and businesses struggle to avoid default, or a green light to invest? “One way to think about it is that we’ve been in a pitch black, dark room for years, and now someone switched the light back on,” said Steve Foresti, chief investment officer of global asset allocation and research at Wilshire, about the move away from ultralow rates and negative bond yields. “It’s disorientating, but the path forward does become clearer. Investors are right in the middle of that adjustment,” …

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