Madison Client Communication | 4Q 2022

Global financial conditions tightened significantly over the course of 2022. Higher interest rates and rising inflation are reducing real economic growth. Despite showing some impressive resiliency, U.S. recessionary risks are nonetheless rising. Investors are anticipating declines in corporate earnings in 2023, and it seems to be a matter of when, not if. Encouragingly, cyclical inflationary pressures are now receding. Furthermore, excepting crude oil, the runway looks quite favorable for a meaningful and sustained decline in inflation. Overall, this disinflationary impulse could pave the way for The Federal Reserve (Fed) to back away from its rapid pace of monetary tightening sooner than anticipated. Third quarter real GDP increased by 3.2%. Fourth quarter real GDP growth is expected to moderate to +1.1%, with a further slowing in 2023 to just 0.3%.

After a challenging first three quarters, markets rebounded in the fourth quarter, with the S&P 500 Index rising 7.6% and the Bloomberg Aggregate Bond Index rising 1.9%. For the year, the S&P 500 fell 18.1% and the Bloomberg Aggregate Bond Index fell 13.0%. In 2022, there was no shortage of headwinds to both equity and fixed income markets – high inflation, higher interest rates, a war in Ukraine, China lockdowns, and supply chain issues. Looking ahead to 2023, uncertainty is likely to persist, and whether or not we get clarity on some or all of these factors, navigating the volatility will again call for an eye on all portfolio risks.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”). MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

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