Weekly Market Insights: 4-14-22 Fed Signals More Aggressive Action on Interest Rates
Hi there,
Opinion
We experienced a “dead-cat bounce” or recovery rally this past month that had many investors rethinking their decision to remain conservative. In typical bear market fashion, we saw yet another head fake in the risks in the markets. We may see more of these head fakes as the markets advance forward so be sure to keep your emotions in check because if you don’t you could fall prey to them as many investors do. In all 3 indexes, March 29th was the peak of the bounce and since then, we have experienced a renewed level of volatility that the data is indicating will not recede anytime soon.
Commodities are on the rise, especially around Agriculture and Energy markets. This is likely not to go down but continue because of rising inflation.
Headwinds at present are:
Rising Inflation
Rising Fuel Costs
Food Shortages
Federal Reserve aggressively raising rates
War abroad resulting in rising global tensions and government sanctions
Supply Chain Disruption for the foreseeable future
Employment shortages still difficult for employers to manage
Mid-term Elections in 2022 that could pose a challenge for future legislation & government spending
What we are doing:
We are awaiting earnings season to evaluate what companies are preparing for and how their recent quarter has fared. Our suspicion is that we will likely see a deterioration in forecasts that point to concerns over rising fuel prices and food shortages coupled with continued problems with supply chain disruption.
These issues will vary in degrees of concern and market interpretations for sure. Some will demonstrate a clear competitive advantage while others will speak of blame and underlying issues.
We seemed to have gotten the risk aversion tilt correct in the 4th quarter of 2021. We underestimated the proximity of when the bear market condition would set in resulting in a market decline…we thought 1st quarter, not January 2nd
We figured we might have a recession begin between 2023 and 2025 but the data is suggesting end of 2022 to beginning of 2023. It does not seem to be a typical recession though which makes for some additional challenges to plan for at this point.
We think we might begin to see some opportunities to buy in the 4th quarter but until we can see more clearly, we are remaining patient and diligent.
Till we speak again, enjoy your spring.
Jon
PS: we will be closed Friday the 15th
General Market Commentary
Stock prices fell last week in response to the Fed’s plan to combat inflation, which staked out a more aggressive stance than investors had anticipated.
The Dow Jones Industrial Average slipped 0.28%, while the Standard & Poor’s 500 fell 1.27%. The Nasdaq Composite index dropped 3.86% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slid 2.05%.1,2,3
Fed Roils Markets
After a positive start to the week, stock prices turned lower on a more hawkish tone from Fed officials. On Tuesday, investors were surprised by comments from Fed governor Lael Brainard, one of the Fed’s more dovish members, who suggested the Fed could take a more aggressive approach with interest rates.
The unease extended into Wednesday when minutes of the last Federal Open Market Committee (FOMC) meeting were released, signaling a potentially faster pace in both interest rate hikes and the wind-down of the Fed’s balance sheet. Yields climbed steadily throughout the week as the bond market digested this new information. Particularly hard hit were high valuation stocks, as reflected in the 4% drop in the Nasdaq.
Fed Minutes
After raising the federal funds rate by 0.25% last month, the minutes from the March FOMC meeting made it clear the Fed is serious about fighting inflation with higher interest rates.
Fed officials indicated they might have hiked rates by a half percentage point in March had it not been for the uncertainty created by the invasion of Ukraine. Multiple Fed officials suggested that future rate hikes may reach 0.5%. Fed officials also discussed allowing up to a $95 billion monthly run off the Fed’s balance sheet, a faster pace than the market expected.4
Source: Econoday, April 8, 2022The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
This Week: Companies Reporting Earnings
Tuesday: CarMax, Inc. (KMX), Albertsons Companies, Inc. (ACI).
Wednesday: JPMorgan Chase & Co. (JPM), Delta Air Lines, Inc. (DAL), BlackRock, Inc. (BLK).
Thursday: UnitedHealth Group (UNH), The Goldman Sachs Group, Inc. (GS), Wells Fargo & Co. (WFC), Morgan Stanley (MS), The PNC Financial Services Group, Inc. (PNC).
Source: Zacks, April 8, 2022Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
"It has always seemed strange to me that in our endless discussions about education so little stress is laid on the pleasure of becoming an educated person, the enormous interest it adds to life."
– Edith Hamilton
Beware of Phishing Scams
A phishing scam is when someone pretends to be a trusted source, such as a bank, tax preparer, or credit card company, to access your personal information.
To avoid falling victim to a phishing scam, here are some recommendations from the IRS:
Never open an email from a sender that you don’t recognize.
Never disclose personal information, including your passwords, bank account number, credit card number, or Social Security number, to anyone online. The IRS will never ask for this information via email.
When possible, use two-factor authentication to protect your accounts. Two-factor authentication requires a secondary form of identification (such as a phone number) to access your account.
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov5
What’s the Deal With Downward Dog?
Even if you’ve never set foot on a yoga mat, you’ve probably heard of one of the most popular poses called Downward Dog.
The pose is so popular because it has many benefits, such as increased flexibility and spinal strength. In yoga, it’s a resting posture to let your muscles lengthen and straighten. It can help stretch your back, neck, hamstrings, and calves. You can sit in the pose without moving (a static hold) or “walk the dog,” which includes pushing your heels toward the ground to stretch out your calves.
If you’re new to downward dog, practice proper form by bending your knees and focusing on lengthening your back and arms. Ideally, your body should be in an inverted “V” shape. Eventually, you may be able to straighten your legs and have your heels touch the floor!
Tip adapted from Do You6
When you take away the whole from this, you still have some leftover. What is it?
Last week’s riddle: What do a shark, a zipper, and a comb all have in common? Answer: They all have teeth.
Female Kingfisher perched upon a moss-covered branch, United Kingdom
Footnotes and Sources
1. The Wall Street Journal, April 8, 2022
2. The Wall Street Journal, April 8, 2022
3. The Wall Street Journal, April 8, 2022
4. CNBC, April 6, 2022
5. IRS.gov, August 26, 2021
6. DoYou.com, September 30, 2021
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
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