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.
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 SPX will end next year at 4,000, or roughly flat from current levels since “the cost of money is no longer next to nothing.” “It’s disorientating, but the path forward does become clearer. Investors are right in the middle of that adjustment,” he said. “There also are some returns priced in now that fixed-income investors can work with.”
But as Chris Haverland, global equity strategist at the Wells Fargo Investment Institute, pointed out in a Tuesday client note, no S&P 500 bear market since the 1970s has found a bottom before the last rate increase in a Fed tightening cycle. Only four months ago, the expectation was for the Fed’s policy rate to peak in the 3.5% to 3.75% range, or below the current level. BofA economists also were forecasting a Fed rate cut in September 2023.
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