Skip to content
Laird Norton Wealth Management
  • Services
          • Wealth Planning
            • Business Owner
            • Equity Compensation
            • Estate Strategies
            • Philanthropic Giving
            • Tax Strategies
          • Investment Management
            • Tax-Aware Investing
            • Risk Management
            • Alternatives & Private Market
            • Impact Investing
          • Trust Services
            • Beneficiary Services
            • Family Legacy
            • Trust Administration
            • Trust Benefits
            • Understanding Trusts
          • NonProfit Clients
            • Request RFP Participation
  • About
          • About LNWM
            • Fiduciary Financial Advisor
            • How We Help
            • Our Team
            • Corporate Social Responsibility
            • Careers
            • Community
            • Board of Directors
            • FAQs
        • two people in a kayak on water
  • Insights
        • Blog

          Top-of-mind at LNWM and elsewhere.

          Papers

          Expert insights and analysis.

          Videos

          See what we're up to.

          Media

          Our published work and media coverage.

  • Contact
Search Icon
Client Login
mobile-login

Home » Insights » Investment Management » Economic Flash: Opportunity in Difficulty

Economic Flash: Opportunity in Difficulty

David Baker | Economic Flash | March 2, 2023 (March 2, 2023)

March 2023

US Economy: Inflation persists.

After an uptick in January, US inflation is running at 6.4% annualized (Consumer Price Index) and 5.4% (Personal Consumption Expenditures). While consumer confidence and spending (+1.8% in Jan.) remain strong, wages are not keeping up with inflation, and debt is on the rise. Consumers in their 30s have already increased their debt levels 27% since the onset of Covid, the fastest pace since the ’08 recession.

US Stocks: Widespread volatility.

Although tech stocks (+0.5%) generally held up well in February, equity markets gave back a good portion of 2023 gains on disappointing inflation data and potential for the Fed to continue raising interest rates. Volatility in the US Treasury bond market (MOVE Index) jumped 24% to more than 123 (historical average is 91). Stock market volatility rose past 20 (VIX Index), after hitting a 12-month low.

Foreign Stocks: Mixed results.

The US dollar, which had been weakening since October, spiked during February on expectations that US interest rates would stay elevated for longer. A stronger dollar detracted from foreign market results, but slightly better inflation data and corporate earnings in the Eurozone boosted returns relative to the US. Germany (-1.8%) outperformed slightly despite economic activity declining to pre-Covid levels.

Fixed Income: Safe and short.

Given the ongoing rise in US interest rates, savings accounts and short-term debt instruments were the leaders in February, with the 3-month US Treasury bill up 2.7%. Municipal bonds lost ground (-2.4%), even though they are typically less sensitive to rising Treasury rates, as did high-yield bonds (-1.3%) despite their attractive relative payouts. Non-US debt issued in foreign currencies was hurt by dollar strength.

Real Assets: Surprise downshift.

Commodity prices typically benefit from higher-than-expected inflation but that was not the case across the board in February. Gold was the key commodity that managed to eke out a gain, but a warmer than usual winter drove down demand for oil (-2.3%) and natural gas (-6.6%). Meanwhile, the potential for an economic slump hurt both infrastructure equities and Real Estate Investment Trusts (REITs).

Alternatives: Limiting downside.

Hedge fund strategies continued the modest or flat performance that made them relative winners in 2022 and again in February. In the private market arena, which tends to be less liquid and slow to adjust valuations, 2022’s downturn has started to be reflected in lower asset pricing and created new opportunities. This is especially the case in the “secondary” market for private equity, as equity owners needing to raise cash are willing to sell at a discount.

Source of data: Bloomberg

Equities Total Return

FEB YTD 1 YR
U.S. Large Cap (2.4%) 3.7% (7.7%)
U.S. Small Cap (1.7%) 7.9% (6.0%)
U.S. Growth (1.2%) 7.2% (13.0%)
U.S. Value (3.5%) 1.8% (3.0%)
Int’l Developed (2.1%) 5.8% (3.1%)
Emerging Markets (6.5%) 0.9% (15.3%)

Fixed Income Total Return

FEB YTD 1 YR
Taxable
U.S. Agg. Bond (2.6%) 0.4% (9.7%)
TIPS (1.4%) 0.4% (10.4%)
U.S. High Yield (1.3%) 2.6% (5.5%)
Int’l Developed (1.0%) 0.2% (11.0%)
Emerging Markets (0.3%) 0.7% (0.2%)
Tax-Exempt
Intermediate Munis (2.0%) 0.0% (2.6%)
Munis Broad Mkt (2.4%) 0.6% (5.5%)

Non-Traditional Assets Total Return

FEB YTD 1 YR
Commodities (4.7%) (5.2%) (4.7%)
REITs (5.9%) 3.5% (12.2%)
Infrastructure (3.4%) 1.5% 0.1%
Hedge Funds
Absolute Return (0.2%) (0.1%) 1.7%
Overall HF Market (0.5%) 1.2% (1.5%)
Managed Futures 2.1% 1.3% 16.2%

Economic Indicators

FEB-23 AUG-22 FEB-22
Equity Volatility 20.7 25.9 30.2
Implied Inflation 2.4% 2.5% 2.6%
Gold Spot $/OZ $1827 $1711 $1909
Oil ($/BBL) $84 $96 $101
U.S. Dollar Index 121.6 123.5 116.0

Glossary of Indices

Our Take

For the last several months, the “rock stars” of economic data points have been those that describe inflation, and this month was no different.  Year-over-year trends still seem to suggest that inflation is turning over, but January’s reading (the most recent) indicates the path forward is unlikely to be a straightforward decline. After decelerating since last October, prices in January rose 0.5% after just a 0.1% increase in December. Understandably, the uptick jolted financial markets, which have begun to price in a higher probability that the Fed will keep raising interest rates.

Currently, derivatives markets are pricing in that the Fed’s key interest rate (Fed funds rate will be 5.4% by September (up from 4.6% now). Meanwhile, consumer expectations for long-term inflation (over the next five years or more) have been anchored in the 2.5%-3.0% range. This is far below the 6.4% inflation experienced in the past 12 months, and it indicates consumers are not likely to accelerate purchases in anticipation of rising prices, further fueling inflation.

Other key economic indicators point to a potential recession or at best a slowdown in growth as higher interest rates take their toll on key economic drivers, including the real estate market and S&P 500 earnings, which were down 4.8% for 4th quarter 2022, the 1st drop since 2020. The Conference Board’s Leading Indicators Index has fallen for 10 straight months, something that has never happened without a recession following soon thereafter.

On the positive side, the labor market continues to be the torch bearer of US economic resilience even if job cuts have risen in the last few months. Assuming the data leans negative and a recession is the offing, that is not necessarily a bad thing since recessions wash away excesses, create new opportunities for investors, and truth be told, usher in robust equity and bond market performance not long thereafter.

Aside from economic fundamentals, increased geopolitical risk, a topic we wrote extensively about it in our latest quarterly Commentary, remains top-of-mind. Essentially, the global economy has benefited from a peace dividend since the fall of the Berlin Wall in the form of a massive tailwind from cooperative trade, reprioritized military spending and globally integrated supply chains. In the past three years, we’ve seen a global pandemic, the war in Ukraine, and rising US-China tensions marking a shift toward regionalism and nationalism/populism, with great implications for economies and markets.

Looking Forward

“In the middle of difficulty lies opportunity” is a phrase ascribed to Albert Einstein. It is of relevance to investors today because we are in an uncomfortable environment where volatility is a constant companion instead of an occasional visitor. When fear and risk dominate, it is incumbent upon us as advisors to identify what is being overlooked by investors and use that to drive longer-term portfolio results. Currently, opportunities related to the restructuring of global supply chains and the building/renovation of infrastructure are among those we are exploring via the public and private markets.

Other positive considerations: Higher interest rates are a double-edged sword: they pose a risk to the economy but they also mean low-risk, short-term debt can offer a decent yield, which hasn’t happened for at least a decade. Equity valuations have become more attractive in the US and even more so in foreign markets. And US bonds and stocks have performed well historically in different types of inflationary environments, as long as inflation does not rise beyond 6% and stay there.

  • Share:

David Baker

David is Senior Director, Investment Strategy and Communications. at Laird Norton Wealth Management. While his focus is mainly on the numbers, David also writes the firm’s monthly Flash report, and he is a key contributor to LNWM’s quarterly investment outlooks.

Sign Up For Monthly Economic Flash

Find out how all major financial markets are performing and why.

Site Logo in footer footer logo
facebook Twitter Opens a news tab Linkedin Opens a news tab Youtube Opens a news tab

About

  • Board of Directors
  • Careers
  • Community
  • Contact
  • FAQs
  • Our Team
  • Sign up for Navigator

Services

  • Investment Management
  • Sustainable Investing
  • Tax Strategies
  • Trust Services
  • Understanding Trusts
  • Wealth Planning

Address

  • Laird Norton Wealth Management 801 Second Avenue, Suite 1600 Seattle, WA 98104 United States
  • 206.464.5100
  • 800.426.5105
© 2023 Laird Norton Wealth Management. All rights reserved.
Form CRSOpen PDF in a new tab Legal Terms and Conditions Privacy Policy
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to customize your settings.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-advertisement1 yearSet by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category .
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
CookieDurationDescription
__cf_bm30 minutesThis cookie, set by Cloudflare, is used to support Cloudflare Bot Management.
bcookie2 yearsLinkedIn sets this cookie from LinkedIn share buttons and ad tags to recognize browser ID.
bscookie2 yearsLinkedIn sets this cookie to store performed actions on the website.
langsessionLinkedIn sets this cookie to remember a user's language setting.
lidc1 dayLinkedIn sets the lidc cookie to facilitate data center selection.
UserMatchHistory1 monthLinkedIn sets this cookie for LinkedIn Ads ID syncing.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
CookieDurationDescription
_uetsid1 dayBing Ads sets this cookie to engage with a user that has previously visited the website.
_uetvid1 year 24 daysBing Ads sets this cookie to engage with a user that has previously visited the website.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
CookieDurationDescription
_ga2 yearsThe _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gcl_au3 monthsProvided by Google Tag Manager to experiment advertisement efficiency of websites using their services.
_gid1 dayInstalled by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
_hjAbsoluteSessionInProgress30 minutesHotjar sets this cookie to detect the first pageview session of a user. This is a True/False flag set by the cookie.
_hjFirstSeen30 minutesHotjar sets this cookie to identify a new user’s first session. It stores a true/false value, indicating whether it was the first time Hotjar saw this user.
_hjIncludedInPageviewSample2 minutesHotjar sets this cookie to know whether a user is included in the data sampling defined by the site's pageview limit.
_hjIncludedInSessionSample2 minutesHotjar sets this cookie to know whether a user is included in the data sampling defined by the site's daily session limit.
_hjTLDTestsessionTo determine the most generic cookie path that has to be used instead of the page hostname, Hotjar sets the _hjTLDTest cookie to store different URL substring alternatives until it fails.
_omappvp11 yearsThe _omappvp cookie is set to distinguish new and returning users and is used in conjunction with _omappvs cookie.
_omappvs20 minutesThe _omappvs cookie, used in conjunction with the _omappvp cookies, is used to determine if the visitor has visited the website before, or if it is a new visitor.
calltrk_session_id1 yearThis cookie is set by the Provider CallRail. This cookie is used for storing an unique identifier for a user browser session. It is used for tracking the number of phone calls generate from the website.
vuid2 yearsVimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
CookieDurationDescription
_fbp3 monthsThis cookie is set by Facebook to display advertisements when either on Facebook or on a digital platform powered by Facebook advertising, after visiting the website.
_mkto_trk2 yearsThis cookie, provided by Marketo, has information (such as a unique user ID) that is used to track the user's site usage. The cookies set by Marketo are readable only by Marketo.
fr3 monthsFacebook sets this cookie to show relevant advertisements to users by tracking user behaviour across the web, on sites that have Facebook pixel or Facebook social plugin.
MUID1 year 24 daysBing sets this cookie to recognize unique web browsers visiting Microsoft sites. This cookie is used for advertising, site analytics, and other operations.
test_cookie15 minutesThe test_cookie is set by doubleclick.net and is used to determine if the user's browser supports cookies.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
CookieDurationDescription
_ce.gtldsessionNo description
_dc_gtm_UA-41670453-11 minuteNo description
_hjSession_275188330 minutesNo description
_hjSessionUser_27518831 yearNo description
AnalyticsSyncHistory1 monthNo description
BIGipServerab10web-nginx-app_httpssessionNo description
BIGipServerab47web-nginx-app_httpssessionNo description
calltrk_landing1 yearThis is a functionality cookie set by the CallRail. This cookie is used to store the landing page URL. It helps to accurately attribute the visitor source when displaying a tracking phone number.
calltrk_nearest_tld9 years 10 months 8 daysNo description
calltrk_referrer1 yearThis is a functionality cookie set by the CallRail. This cookie is used to store the referring URL. It helps to accurately attribute the visitor source when displaying a tracking phone number.
CookieLawInfoConsent1 yearNo description
li_gc2 yearsNo description
SAVE & ACCEPT
Powered by CookieYes Logo