Market & Topical Perspectives

3Q22 Market Overview: Fake Empire

3Q22 Market Overview: Fake Empire

An impressive early-summer rebound in risk markets proved fraudulent, as the weakness that has characterized much of 2022 resumed in the back half of the third quarter and sent many indexes back into bear-market territory.

Key Takeaways

  • Hopes for a Fed pivot toward a more moderate pace of policy tightening were dashed during the quarter, as central bank rhetoric made it clear that fighting inflation remains its primary focus.

  • Market and macroeconomic trends in 2022—while painful— generally reflect a mathematical and relatively orderly transition from an environment marked by a generational-low cost of capital to one in which money has a price.

  • The good news is that the mathematical phase of this reckoning may be complete, and asset prices once again appear to offer reasonable risk premia for investors. However, the emotional—and potentially more challenging— phase may still lie ahead.

  • While current market valuations support the judicious planting of seeds to hold for the next decade, the potential for nonlinear market behavior compels us to maintain defensive optionality should even more attractive opportunities emerge.