Here are 5 things stock market investors should watch for with volatility set to ramp up through year-end

• Turbulence in financial markets and the economy is likely to pick up in 2023, says Coamerica Wealth Management.
• There are five key fundamentals to monitor for investors to monitor, the firm said.

There are signposts for investors to keep an eye one with turbulence in markets likely to pick up as rate hikes from the Federal Reserve's most aggressive policy campaign in decades continue to seep into the US economy, Coamerica Wealth Management says.

The Fed on Wednesday issued its 10th straight interest rate increase to a near 20-year high of 5%-5.25%. The latest move comes as the US bond market flashes recession warnings as steeper borrowing costs put pressure on the economy. At the same time, regional bank stocks have been selling off on worries about depositors fleeing small to mid-sized banks after the abrupt collapse and seizure of Silicon Valley Bank in March.

"A quick review of GDP, inflation, employment, interest rates and corporate profits suggests the economy, and the financial markets, face more volatility in the months ahead," John Lynch, Comerica Wealth's chief investment officer, said in a Wednesday note.

Here are five fundamentals investors - and Fed policymakers - should emphasize "to gauge the extent of the weakness, as well as the source for recovery," he said.

1. Gross Domestic Product

The world's largest economy quickly slowed to 1.1% growth in the first quarter, well under the 2% rate that was anticipated and the fourth-quarter 2.6% annualized pace. A manufacturing recession was evident although solid employment supported personal consumption, said Coamerica Wealth.

The economy should continue losing momentum in the second quarter, indicated by weakening in business and consumer surveys, according to Coamerica Bank's chief economist Bill Adams.

2. Inflation

Still-high inflation remains in the Fed's crosshairs and above its 2% target. The Consumer Price Index in March at 5% year over year was down from peak levels, but core prices that strip out volatile food and energy prices are elevated. The Fed's preferred inflation gauge, the core PCE Index, was roughly unchanged at 4.6% in March. Wages, representing about 70% of business costs, were sticky at around 4.9% at the end of the first quarter.

"Price pressures in the labor-intensive services continue to run faster than pre-pandemic norms, contributing to over-target inflation," said Lynch.

3. Employment

"It will be difficult to experience a severe recession with the unemployment rate hovering below 4%. Indeed, more people are employed today than at the end of 2019, right before the global pandemic wreaked havoc on the economy," said Lynch. The labor market slowed in March and the unemployment rate was near a 50-year low at 3.6%.

Still, the labor market remains solid despite notices of massive layoffs at large companies including Meta and Disney. Also, jobless claims are indicative of continued strength in the labor market. "As a result, we suspect the employment situation to act as a solid buffer against some of the other trends pointing toward recession for the U.S. economy," Lynch said.

4. Interest Rates

Market interest rates have been volatile, but the message from the inverted Treasury yield curve has been consistent with its recession warnings. The yield on the 2-year Treasury note has fallen faster than that of the 10-year note, a dynamic that's preceded each of the past five recessions.

But Comerica Wealth said it sees the signal from corporate bonds as less ominous.

"The interest rate differentials, or spreads, between the 10-year Treasury and investment grade and high yield corporate bonds hover within their average width over the past 25 years, a bond market signal indicating the likelihood of a less severe, or mild recession."

5. Corporate Profits

While recent earnings reports have exceeded expectations, an earnings recession has already started, serving as a precursor for cuts in employment and capital investment. Comerica foresees 2023 per-share earnings for S&P 500 companies to be essentially flat. Its mild recession scenario would see the index generating profits of about $220.00 a share this year.

"Assuming a trailing twelve-month P/E ratio of ~19 times, we would view the S&P 500 as fairly valued in the range of 4,150 by year end, though not before retesting last October's low," Comerica's top strategist said.