After focusing on the labor market in 2021, we expect the Fed to shift its attention back to inflation during 2022. Meanwhile, U.S. consumer activity is back above pre-pandemic levels, likely aided by a red-hot job market. With interest rates on the rise, a rotation away from growth stocks may cause some strife for investors as well as companies eager to enter the public markets.

Inflation and employment remain critical areas of focus for the Federal Reserve and Washington D.C. as politicians look to next year’s midterm elections. After a challenging September, equities roared back with an earnings season that is driving a wave of positive sentiment expected to last through the end of the year. The benefits of gold as a portfolio hedge are reexamined as inflation stakes its claim on the front burner.

US Treasury yields have been trending lower despite favorable fiscal policies and strong economic conditions. For its part, the Fed been dealing with an elevated stock market, rising commodity prices and an ongoing surge in inflation. To combat these issues, the Fed has indicated it may begin to raise interest rates as early as next year. Overall, corporate and municipal bonds had a strong third quarter although upcoming reductions in enhanced unemployment benefits may have a negative impact on municipal issues

September saw broad declines across equity markets due to a confluence of factors including inflation, higher Treasury yields, the COVID surge and a rise in corporate tax rates. As we look toward the future, equity investors would be wise to continue considering organizations that are poised to deliver higher earnings over time.

Although this year’s third quarter was flat, the S&P 500 is up significantly. The vitality of the US economy is driving our affinity for US Domestic Equities. Risks, however, are on the horizon along with significant unknowns and variables that may challenge sustained market growth. We continued to advocate portfolio diversification across asset classes.

A significant rebound in the overall bond market was bolstered by a hawkish Federal Reserve holding its position that inflation is transitory. With short-term rates increasing and longer-terms rates declining, the major fixed income sectors have moved past one of the worst performing quarters in decades.