Market Review

Yields continued to rise in October as inflationary concerns persisted and political developments overseas leaked into U.S. markets. The 10-year U.S. Treasury note yield reached the highest levels in over a decade, touching 4.24% before closing the month at 4.07%. Real yields moderated as inflation protected securities (TIPS) outperformed nominal Treasuries.

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A writer from 19th century France once noted that the more things change, the more they stay the same. This phrase could well apply to the market dynamics of the third quarter of 2022. Extreme volatility, a strengthening U.S. dollar, negative equity returns, and rising bond yields, all present throughout 2022, continued to saturate the investment landscape. 

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Rate volatility picked up following a surprisingly strong July employment report and was further supported by Fed speakers working to move market participants from a “dovish pivot” toward a “higher for longer” theme for federal funds. Chair Powell’s short speech at Jackson Hole reinforced the committee’s commitment to squash inflation with expectations of a sustained period of higher overnight rates.

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The Inflation Reduction Act of 2022 represents a major development in U.S. climate and industrial policy. This month, we outline the pros and cons of the bill as well as investment implications across a wide range of industries. Additionally, the labor market continues to be tight while employers are being pressed to cut costs due to inflation and a slower growth outlook. We share how human capital management can be a differentiator for employers in this challenging environment.

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As we reflect on the first half of 2022, it is clear that the storm clouds have moved in over the ESG investment landscape.

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Rate volatility declined in July but remained elevated. The curve twisted around the 2- and 3-year notes; maturities of 1 year and less moved up in yield while intermediate to long maturities declined. The yield on the 10-year started the month at 2.88%, hit a high of 3.08% following the very strong June jobs print, and ended the month at 2.65%.
 
 
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