Throughout 2022, headlines have shared positive news, negative news, and surprises along the way. We have been monitoring individual headlines alongside long-term prospects to gain additional understanding of today’s investing landscape. While the inputs may be unique to 2022, we are confident that a long-term balanced perspective is a healthy approach. Here’s a list of what we are watching with a bit of insight.
- Inflation – “the silent tax” has risen throughout 2021 into 2022 to the highest number we recall in recent memory. CPI was last reported 3/31/22 and measured the increase of cost of goods and services compared to last year at 8.56%. The last time the US saw similar high rates of inflation dates back to the early 1980s where numbers peaked near 13.5%. The Fed has a mandate to keep inflation moderated at 2% and raised interest rates this week to reduce inflation pressures. The next CPI report date is scheduled for next week – one year after inflation began appearing in headlines.
- Interest Rates – Interest rates have been rising for the past several months. For example, a 30 year fixed mortgage now sits near 5%, a far cry from the historically low sub 3% rates found in the COVID era. To control interest rates, all eyes are on the Federal Reserve. The Fed sets the rate that banks borrow from each other, known as the overnight federal funds rate. An increase to the “Fed funds rate” sends consumer interest rates higher. This week the Fed raised the target rate to .75% - 1%. The Fed will likely continue to increase the rate in additional efforts to curb inflation. An estimated 3.25% to 3.50% is likely required to neutralize inflation, and the Fed will announce potential additional 50 basis point rate hikes in June and July. Rising rates means the cost to borrow funds increases – often leading to a slower growth of the economy overall.
- Market Correction – major market indexes are nearing or setting new 52 week lows this week. The stock market has been in the headlines with significant turbulence throughout the year, but the bond market deserves attention too. The bond market posted its worst quarter in 40 years in Q1 of 2022. Stabilization in markets will require a reduction of fear-based selling.
- Valuations – entering 2022, the markets were believed to be approximately 20% overvalued. A historical lack of interest in the bond market urged investors into riskier assets to drive growth. Earnings reports throughout 2022 have been largely positive with few exceptions. Pair positive earnings with a drop in stock prices and we are now approaching fair value in markets. We are actively seeking entry points into assets where fear has driven sell-off momentum.
- Supply Chains – a carryover buzz word from 2020 and 2021 has continued to grab headlines in 2022. Demand for goods and services continues and a lag in production ability is still gripping companies across the globe.
- Geopolitical Conflict – Russia initiated military conflict in Ukraine in February 2022. The conflict now extends into its third month. The humanitarian crisis stands at the front of all our hearts and minds; secondarily, the impact to markets has been widespread. Ukraine is known as the breadbasket of Europe, and raw materials are unable to be freely shipped and traded with other nations across the globe. Commodities prices for wheats and grains have increased since the conflict began. Additionally, many countries and individual companies have refused to trade with Russia directly. International sanctions have severely impacted Russia, who is now suffering an economic crisis.
- Economic Growth – a healthy economy should expand each year, assuming normal circumstance. In 2022, growth estimates have been reduced to 2.5% in the US and 3.3% globally. Q1 of 2022 was the first negative growth quarter measured since the COVID pandemic began in 2020. Growth is still anticipated, though at muted numbers compared to the expected figures when the year began.
- The New Normal – Labor markets have grabbed headlines recently by highlighting growth and a return to pre-pandemic unemployment levels. The most recent jobs report from April shows the unemployment rate at 3.6%, with additional employment figures approximating levels last seen in February 2020. There are currently 1.7 jobs for every job seeker in the US. “The New Normal” also includes 62% of American workers report working remotely at least some of the time. Growth described in the jobs report is likely a key indicator for economic growth for 2022.
The bullet points above show examples of headlines that we continue to monitor in 2022. We remain confident that a long-term focus and a measured approach to investing is the best practice to cope with the pressures listed here.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.