Inflation on the Right Track in Q4 2022

Inflation on the Right Track in Q4 2022

Q4 2022 Market Review | KayneCast 206

January 9, 2023

On this episode of KayneCast, Jordan Greenhouse, Managing Director, Senior Client Portfolio Manager and Relationship Manager for Kayne Anderson Rudnick, discusses the Q4 2022 market review with Doug Foreman, CFA, Chief Investment Officer, Portfolio Manager as they look ahead to 2023.

Q4 Proves Feds on Right Track

The quarterly market update for 2022 indicates the Federal Reserve’s hawkish monetary policies are working. Q4 saw some recovery across most equity classes, with the S&P rallying over 7% during the fourth quarter after finishing the year down over 18%. Foreman attributes this recovery to better-than-expected inflationary numbers. KAR has highlighted that inflation has been heading in the right direction since June of 2022, and this improvement became apparent in Q4.

Technology Sluggish in Comparison to Overall Market

While the overall market saw improvement in Q4 2022, the technology sector was sluggish. Foreman explains that the top heavy-S&P 500 companies like Amazon, Salesforce, Apple, Microsoft, etc., are experiencing fundamental growth issues.

Foreman believes the days of unlimited tech growth are over. He believes it will be important to be selective and find companies that can grow in today’s slower, tougher environment.

Market Fears of a 2023 Recession Slow Recovery

Based on the market response to Q4 2022, Foreman is cautiously optimistic about the quarterly market outlook for 2023. He notes the Fed’s hawkish policy towards inflation is working and expects to see monetary policies become more neutral in the next six to eight months, especially if inflationary statistics continue to be better than expected. Labor and wage gains may somewhat impair the inflation outlook, but Foreman does not believe these factors will negatively impact the 2 to 3% level the Feds are targeting.

Most market participants, however, fear a recession in 2023. An inverted yield curve with levels not seen since the 1980s drives these concerns. However, Foreman notes that market concerns may mitigate the risk of a deep recession, as the stock market has anticipated the event. He believes a recession is likely before year-end 2023 but will not be as deep as the market fears.

As for investment strategies, Foreman recommends time, patience, and a willingness to let the Federal Reserve meet its hawkish goals. Once the Fed adopts a more neutral stance, equity prices should recover. KAR’s will continue to practice seeking out selecting quality, self-financing businesses with healthy balance sheets that will be positioned well when and if a recession emerges.

Listen to the podcast to learn more about market impacts in Q4 2022, or read our complete 4Q 2022 Commentary where KAR CIO Doug Foreman reviews market performance and the good and bad news as we look ahead to 2023.

This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information in this article is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date listed on the correspondence, and KAR does not undertake to update the information presented. This information is based on KAR’s opinions at the time of publication of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. Past performance is no guarantee of future results.

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