As we enter September, markets continue to deal with inflation, interest rates and the Ukraine conflict. As we have seen throughout 2022, investors debated whether the Fed would be able to control inflation and how much higher interest rates would go. Given this uncertainty, markets have been prone to strong movements and frequent reversals. This has certainly been the case over the past several months.
Equity markets hit a year-to-date low in mid-June, declining over 20%. From there, stocks and bonds both mounted strong rallies. The S&P 500 clawed its way back, rising over 15% off the lows on optimism that the Fed rate hikes would moderate.1
Fed stays committed to its job
All that changed in August when Fed Chair Jerome Powell bluntly reiterated that they were not even close to an end of the tightening cycle and they would, “keep at it until the job is done.” Of course, that is not the only thing investors had to contend with. The war in Ukraine has continued. Most recently, Russia, a major source of energy to Europe, has restricted supply which could weaken European economies. With that, equity and fixed-income markets reversed course yet again, erasing roughly half of recent market recovery.
Throughout all of this, the market experts and pundits have offered little help. During declines, some headlines highlight how much worse it might get. During recoveries, stories stress that the worst may be behind us. Adding to all of this, the markets, as always, have their sideshows as the cryptocurrency saga continues.
As always, we strive to examine the data and market history rather than the immediate market reaction. While Chairman Powell’s comments apparently disappointed investors, it could be far worse. The 1970’s and 80’s were difficult times. Inflation rose to an astonishing 19% and persisted for several years. Sustained inflation at that level is crippling to businesses and individuals alike. Unlike some, we took the time to read the entire Fed statement and put it into historical context. Yes, we read stuff like this. One comment caught our attention. Powell said that the Fed intended to reduce inflation forcefully, since failing to do so would mean “far greater pain” in the future. We agree. Paying the price now is better than lingering weakness.
We stay committed to our job
Markets like these are difficult to navigate on both the portfolio and personal level. We get that. Even though common, bear markets are understandably unsettling even for the most seasoned investors. During times like these, one often hears many opinions and voices. Some might say we are just waiting for the other shoe to drop. On the other side, people say stay the course whatever happens. We believe you need more than platitudes and proverbs to get through challenging times.
Events of this year and the pandemic illustrate world events and market reactions are unpredictable. But there are things we can do. We can control what we can through diversification and being risk aware. We can prepare and adjust. We can keep you informed. We are also here to listen. Let us know if you would like to talk. We will get through this together.
The Economist, S&P Global Indices, The Federal Reserve, The Federal Reserve Open Market Committee, St. Louis Federal Reserve Data Base, Wall Street Journal, Barron’s, CNBC
1 The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock's weight in the index proportionate to its market value.
Past performance is not indicative of future results.