- We expect the U.S. economy to grow in 2022 and also eek out growth in 2023. Annual growth rates may mask some of the intra-year economic activity which could be quite volatile.
- Depending on how aggressive the Federal Open Market Committee tightens and how elevated inflation stays, real quarterly growth could be negative, especially in the beginning of 2023, as high food and energy costs weigh down real spending. See the Midyear Outlook publication for more insights.
- Inflation will likely be above the Fed’s target as the rates cool down for the remainder of the year. This cool down period will slow down and the inflation pressure will subside as consumer retail activity eases.
- A slowing housing market will also help with inflationary pressure as supply and demand changes.
- We have lowered our 2023 S&P 500 Index fair value target to 4,300 – 4,400 on resilient earnings and some room for multiples expansion.
- Volatility is likely to persist, but typical historical rebounds from weak quarters and strong late year seasonal patterns in mid-term election years may provide support.
- Uncertainty will persist for the 10-year Treasury yield, but we expect it to settle in the 2.75 – 3.25% range by the end of the year.
- As inflation slowly subsides, high quality bonds are likely to return to their traditional role of portfolio diversifiers.
- Republicans remain heavy favorites to take the House and slight favorites to retake the Senate.
- Historically, the S&P 500 Index have responded positively during periods of “mixed government,” when we do not have the same party in the White House and both chambers of Congress.
See the Full LPL Research’s Midyear Outlook 2022: Navigating Turbulence for more!