Markets declined broadly during the 3rd quarter, as investors digested better-than-expected economic news leading to a higher likelihood that the Federal Reserve would keep interest rates higher for longer. Volatility in equity and bond markets has continued into the 4th quarter, whittling away at gains built in the first half of the year.
While performance across asset classes is still far better than during 2022, market behavior - specifically in the bond market - during the 2nd half of this year indicates to us that the challenges of higher interest rates are here to stay indefinitely. But, higher interest rates also have given birth to new opportunities for higher expected returns at lower risk. After a high-level review of economic and market health, we will drill down into the current state of the bond market and the role of bonds in portfolios.
