CIO Monthly Observations - February 2023

Chris Zaccarelli |

Markets in Review

Markets rose swiftly in January, as the S&P 500 increased 6.2% during the month, beginning the year on a very positive note. The MSCI All Country World index rose even more quickly, up 7.1% in January, a big jump to start the new year. Bonds also gained, with the Bloomberg BarCap U.S. Aggregate Bond index increasing by 3.1% during the month.

What a difference a month makes, as markets in January began to anticipate the eventual end of Federal Reserve interest rate hikes, because inflation continued to fall more quickly than expected. There are still concerns about economic growth and a possible recession, given how much the Fed has raised rates so far, but in the meantime, the economy remains strong and inflation has been headed back down to more normal levels.

Monthly Highlights

  • Bond yields fell as traders began to anticipate the end of Fed rate hikes
  • Kevin McCarthy was selected as the new Speaker of the House
  • Inflation continued to subside as rate hikes circulated through the economy

News in Review

Below are some stories that caught our eye this past month. To learn more, follow the links to the full article.


Bond Yields Tumble as Traders Dial Back Fed Wagers

US treasury notes and bonds act as the benchmark rate for most financial assets and their yields have been falling as traders believe the Federal Reserve will continue to reduce the pace of their interest rate hikes. Last year, the Federal Reserve raised the overnight rate by 0.75% four times and then in December followed that up with a 0.5% interest rate increase. Traders believe that the Fed is almost done raising the overnight interest rate and are looking ahead to future rate cuts, which is why they have been buying longer-dated treasuries, pushing down the yields on those bonds (yields move inversely to prices).

Kevin McCarthy Wins House Speakership

Republican Congressman Kevin McCarthy was elected to Speaker of the House after an historic number of votes. He had to convince a small minority of his party to vote for him after they refused to support him unless he gave in to their demands. The bruising battle to be selected has left him weakened, but he now holds a powerful position in government and is second in line to the Presidency.

Inflation Rate Slides as Service Prices Show Progress

The inflation rate continued to fall, dropping to 6.5% from 7.1% the previous month and down from 9.1%, which was the peak rate in 2022. The lower-than-expected inflation reading has significantly increased the odds that the Federal Reserve will again lower the pace of their interest rate hikes to 0.25% on February 1st, from the 0.5% increase that they did on December 14th.

Here's What 2023 has in Storeas Predicted by Experts in 1923

A researcher compiled a list of predictions about 2023, from newspaper clippings that were published 100 years ago. Some of the predictions were that “watch-sized radio telephones will keep everybody in communication with the ends of the earth,” or they predicted smartphones, the internet and digital dictation, but others were for flying cars, mental telepathy and that the average human lifespan would be 300 years long. Despite the wide range of predictions – and accuracy of those predictions – the researcher who compiled them in a now-viral twitter post, said that his main takeaway was “just to be modest about the certainty of predictions a century out.”


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S&P 500 INDEX: The Standard & Poor's 500 Index is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
NASDAQ 100 INDEX: The Nasdaq 100 Index is an unmanaged, capitalization-weighted index of the largest 100 non- financial stocks traded on the Nasdaq market. Unlike the S&P 500 it does not represent all major industries and may be more volatile than more broadly constructed indices.
MSCI ACWI INDEX: The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries. With 2,495 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index: The Bloomberg U.S. Aggregate Bond Index is a broad-based index of the U.S. investment-grade, fixed-rate bond market, including both government-related and corporate securities and mortgage- backed and asset-backed securities.
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