Inflation is the key macroeconomic concern, currently running at the highest levels since the early 1980s. Excessive economic stimulus, through both direct payments to the public during the pandemic, and via the Federal Reserve lowering interest rates and intervening in the financial markets, is at the core of the current inflation conundrum.

The Federal Reserve has reversed course and is now demonstrating its resolve to bring inflation down by raising short term interest rates and is doing so in an aggressive fashion.

Rapidly rising interest rates bring down total returns for nearly all asset classes. This has resulted in the worst first-half performance for bonds and stocks in any calendar year since the 1920s.

Commodity price inflation, exacerbated by the Russian invasion of Ukraine, is beginning to wane as nearly every grain, metal and energy market has declined rapidly in the last two months. This will make the Fed's job a bit easier as it combats inflation.

The risk going forward is to the broader global economy: will the Fed's response to inflation result in recession? It is almost a foregone conclusion that the Fed is willing to tolerate a recession in exchange for bringing inflation back down.

We believe that the rapid increase in interest rates has nearly run its course. We believe that Consumer Price Index reports over the coming months will show that inflation is about to moderate. This should provide cushion to the bond market, but the stock market's ability to rebound will be determined by the depth and length of any economic slowdown.

KSU's portfolio is modeled as a 72% allocation to equities and 28% to fixed income.