The Mako at SeaWorld Orlando is my favorite roller coaster. It has multiple ups and downs, with one drop being 200 feet. It’s marketed as the tallest, fastest, and longest roller coaster in Orlando and gives riders a sense of pure joy or terror, depending on your feelings about vertigo. In short, it’s fantastic. I last rode the coaster in 2019, and little did I know then that when I stepped off it with shaky feet, we were all about to go on a roller coaster of a different kind.
The “roaring twenties” have been dramatic for the markets, continuing into the first quarter of 2022. The roller coaster seems to have shifted from the COVID phase to the inflation/war phase; though COVID cases are climbing again, the risks of government regulations causing more slowdowns is rising. For example, Philly just put indoor mask mandates back in place. Despite all the negative chatter, stocks rallied in March, making up some of their year-to-date losses. So, what’s been happening, and where do we go from here?
Let’s take a look at some highlights
Inflation continues to run hot
We are sure you saw the headline flash on the news. Last year, prices soared by 8.5%, with inflation hitting its highest point in more than four decades. Even if you didn’t see the news headline, you saw the impacts at the gas station and grocery store, but the price increases were broader than just food and energy. Core CPI, which strips out food and energy from its measurement, was still up 6.5% in March. For example, airline fares jumped almost 11% from February to March this year as travel demand is recovering. Hopefully, you have already made your summer vacation reservations...
Causing the Fed to speed up
It seems like every time a Fed member speaks; they are signaling a faster pace of tightening. Last month, the Fed had a lift-off, finally starting to increase rates for the first time in three years. They also indicated that every Fed meeting should be considered a “live meeting” with the potential for further rate increases.
Fast forward a few weeks, and it looks more and more likely that the next interest rate hike will be by 0.5%. The recently released March meeting minutes showed that many officials were already ready for a higher hike. The higher-than-expected inflation numbers support that idea.
As we mentioned last month, the fed is in a tricky spot. Tighten too fast, and we head to recession. Tighten too slow, and inflation continues to run rampant. It’s a tricky balancing act, and one will be talking about it a lot in these monthly updates. Stay Tuned…
With Earnings on Clock
This week kicks off earnings for the first quarter, with some big financial companies scheduled to report. Earnings are expected to grow by 4.5% compared to last year. Unsurprisingly, the energy sector, in particular, looks to show good growth. Investors should pay attention to how the inflation story is impacting companies. Rising wages and commodity prices could eat into companies' profit margins, projected to grow at 12.1% in Q1. That would still be above the 5-year average profit margin but could be coming down. Watching profit margins and listening to what companies are saying in their investor calls could give broader clues to what’s coming overall.
For the year ending on April 12, 2022;
- The S&P 500 is down 7.37% (green line)
- MSCI EAFE (International index) is down 8.04% (orange line)
- Barclays Aggregate Bond index is down 8.74% (blue line)
The Smart Investor
We feel like a broken record in saying this, but volatility is likely to continue. The combination of inflation, fed actions, and the war in Ukraine extend the roller coaster ride. Roller coasters don’t have to be terrifying, though. Trusting your safety devices, keeping a level head, and not trying to jump off the ride right in the middle should see you through.
This isn’t the time to make big changes to your long-term investment plan but reviewing it to make sure it still makes sense for you and tweaking it where necessary may be a good idea. If you need help or have concerns, shoot us a message at firstname.lastname@example.org.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities that represent the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.