April 1, 2022
If you are thinking a lot is going on in the world, you would be correct. Of course, there has always been some geopolitical event that has impacted the US and global markets, from the 1962 Cuban missile crisis to 1979 Iranian Hostage crisis, the 1979 Soviet Invasion of Afghanistan, 2003 Iraq War, 2014 Ukraine conflict and 2016 Brexit vote. All these events had an unsettling effect on the equities markets. The point being that quality survives the test of time, regardless of the political party in power or the impact of inflationary forces.
The Federal Reserve was caught off guard by how quickly the economy recovered from external factors associated with covid, lockdowns pandemic related supply and demand imbalances. With inflation running at 40-year highs of 7.9%, it is unlikely that year end inflation will be at the targeted 2.5 to 3%. Currently the US has about 2.5 million fewer people employed than January 2020, thereby fueling wage inflation. The delicate balancing act will be to raise short term rates to slow the economy without raising rates too fast and triggering the economy to slip into a recession.
While all this plays out over the next few months, we expect the markets to remain choppy, with the short-term Treasury bond rates reaching 2-2.5% and the long bond rates not moving much at all.
We expect the second half of the year to be more positive than the first, although earnings growth has slowed, growth and quality are still a great long term investment combination.
Although all three indices were up for the month of March, so far this year the Dow, S&P 500 and NASDAQ remain negative at -4.57%, -4.95% and -9.10% respectively, while the 10-year Treasury yield is currently yielding 2.33%.
*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.