After the recent hike of 75 basis points the markets remain in a tug of war between inflation and the Federal Reserve's response to it. By the end of 2022, the fed funds rate could be in a range of 4% to 4.25%.
When investors believe inflation and interest rates will be lower, stocks rally. When they fear inflation and interest rates will be higher for longer, stocks fall. Many analysts are calling it a hangover from the government's COVID stimulus. And like many of the impacts from COVID, it's going to take a while to iron out.
From the bottom in March 2020 to the top in December 2021, U.S. stock prices increased roughly 114%. Measured from the bottom in March 2020 to today, stocks are still up about 70%.
The path of returns can be emotionally difficult. If I had told the average investor in March 2020 that stocks in general were going to be up 70% in 2 ½ years, they would have been overjoyed. But since the path we took was up 114%, then falling back to a 70% total gain, hurts.
- LPL’s Fixed Income Strategist Lawrence Gillum and Chief Economist Dr. Jeffrey Roach shared there could still be a soft landing possibly in the cards for the Federal Reserve and the markets. But, are watching closely 2023 when higher interest rates will likely flow into the economy.
- The August CPI rose 8.3% year-over-year (YoY) from 8.5% in July. Excluding food and energy, the core Consumer Price Index (CPI) rose 6.3% (YoY), accelerating from last month. Both headline and core inflation were higher than analysts expectations.
- Inflation pressures appear to be easing in a few categories such as gasoline, airfare, and used vehicles. However, several categories are still running hot. Food prices rose 11.4% from a year ago, the largest year-over-year increase since 1979, and electricity prices increased 1.5% month-over-month, the fourth consecutive monthly increase. However, as import prices and producer prices ease, the inflation outlook should improve.
- US Mid-term elections are still ahead. Historically have been a hugely bullish feature.
- Corporate earnings from Q2 from were better than expected. Almost every sector reported gains while gross profit margins remained overall healthy. While a few automakers have shared expected inflation challenges for Q3 other industries are starting their early forecasting for Q4 numbers and are expecting them to be positive.
While this year has been uncomfortable (to say the least) we always want to communicate with you and make sure we are pursuing your long-term goals and vision with you.
If you’re facing a challenge now in your financial strategy like knowing whether to save or invest or which moves to make to lessen your tax burden, let’s schedule a call to talk.