March 1, 2022
During the month of February, the markets digested the impact of reduced covid numbers, the prospect of sustained inflation, and an invasion of Ukraine by Russia. Fortunately, barring some unforeseen and catastrophic move by any one of the world’s superpowers, the negative effects of geopolitical events are short lived while inflation is not as transitory as originally outlined by the Federal Reserve.
The current economic and market environment is now gearing up for higher inflation, muted stock market returns and greater volatility. Although this may seem like a greater challenge than previous years, it is not. Depending on your individual situation, the markets are factoring in all these current events.
Interest rates on bonds at the short end of the yield curve should rise as the Federal Reserve raises Fed Funds and discount rates, while the long end is not expected to change dramatically, thereby flattening the overall yield curve. This is often when investors are tempted to look at riskier or non-traditional assets to boost the yield on fixed income. It is important to understand that higher credit risk and liquidity risk could be detrimental to the overall strategy. All our clients have some degree of fixed income that acts as a counterbalance to any downturn in the equities markets. Rebalancing back to a comfortable allocation is key to long term growth and having your portfolio keep up with inflation.
As we collaborate with you on your portfolio it is important that you keep us informed about cash needs. We always want to raise funds in an up market and not be forced to sell into a down market.
Year to date the Dow, S&P 500 and NASDAQ are all down at 6.73%, 8.23% and 12.10%, while the 10-year Treasury yield is at 1.822%.
*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.