Two Sides to Every Story?

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

The market has been indecisive but with reason. 2023 has been filled with strong opinions however, many of the opinions are of contrasting beliefs. Reading the future is not easy. If it were then getting wealthy would be equally simple. We constantly attempt to position our investments to optimize return. What is becoming more difficult to navigate (in my opinion) is how the media’s influences on our market views. Why? At the risk of sounding cynical, it is problematic to try to determine if what we are hearing is a reporting of facts or a twisting of partial truths with added sensationalism to sell tickets to the show.

As we close out 2023, the market tone has shifted to strongly suggest that all is well and the economy will avoid any of the negative trappings owed to the massive money injected into the economy, inflation, the pandemic, elevated interest rates, or any geopolitical occurrences plaguing the world. As a strategist for fixed income, part of my role is to demonstrate ways to protect your hard-earned wealth and, although growth is a welcome secondary benefit, guarding your capital is often the primary goal. When the whole world seems to come together on an opinion, I tend to take a cautious look and at the very least, expose the other side or reasonable alternative economic paths that may influence your fixed income choices.


We do not have to go back in time very far to expose the dangers of erroneous mantras. Recall the Fed’s proclamation that inflation was merely transitional. Instead, we saw inflation climb to 9.1% (Consumer Price Index year-over-year) at a high and average 8.0% in 2022. This year inflation has dropped significantly to 3.1%, directionally constructive, yet still a distance from the Fed’s 2.0% goal. Remember also that inflation reduction does not mean price reduction. It simply means that prices are growing at 3.1% instead of 9.1%. The detrimental effects of higher prices instituted last year remain. Food and services cost more today than they did a couple of years ago. The hope is that eventually, earnings increase to absorb the cost. Earnings are not keeping pace so far.