Presented by The PensionmarkMeridien Team, February 24, 2022
It is often said that investing in the financial markets is like riding a roller coaster. It is a suitable analogy, with one important exception, roller coasters are highly planned feats of construction. Engineers and safety experts quibble over every single twist and turn, seat belt and bolt; even the lines in the major destination theme parks are oozing with wow factor these days. Nothing is left to chance or is unexpected. So perhaps, the stock market is more appropriately like riding a roller coaster without an engineer and major unexpected twists and turns. If we know anything for certain, the markets hate uncertainty.
Since early 2020 we have all felt our bellies in our throats numerous times. Covid-19 brought us a large-scale roller coaster hill with a precipitous drop in the stock market. On March 12, 2020, the Dow fell 2,352 points to close at 21,200. It was a 9.99% drop, and the sixth-worst percentage drop in history, then a mere four days later, on March 16 the Dow plummeted nearly 3,000 points to close at 20,188, losing 12.9%. The drop in stock prices was so massive that the New York Stock Exchange suspended trading several times during those days. As the ride continued, we hit an incline with a sharp “V” shaped recovery, while the S&P reached record highs throughout the summer of 2020. (1) We rode along through supply chain crisis, recovering unemployment (and lack of workers for millions of open jobs), surging inflation, and now just as it appears we were turning the corner to a smoother ride, Russia has begun it invasion of portions of Ukraine. As the Biden Administration, along with the EU and Japan, has begun to levy sanctions it is imperative to appreciate that these actions will greatly impact Russia and its people, but will also have an effect on the global economy. Most notably, global and US energy prices will be impacted. (2)
In addition to this Russian aggression, inflation continues to be a more persistent issue than the Fed had previously indicated. The CPI inflation rate of 7.5% is being driven by housing, energy, supply chain issues and labor shortages. However, don’t fear the rollercoaster ride, because despite the alarming headlines the current rate is not unprecedented, nor has it reached the record highs that were recorded in the 1970’s and early 80’s. The key part of Fed’s mission is to keep prices stable. We anticipate that quantitative tightening will be coming, along with a faster series of rate hikes and/or a sharper peak for short-term interest rates. (3) (4)
As a result, the drop in equities will likely persist. We do not envision any wholesale changes to our portfolio construction, as we do feel that with the pandemic becoming an endemic, the Fed taking suitable action, and with faith in diplomacy, the US equity markets are poised for another good year. If you are worried about the financial markets, please reach out. We understand that current events can be a bit overwhelming, and you may feel the need to be proactive.
Contact us and we will discuss, but for now we will keep on riding.
The PensionmarkMeridien Team may be reached at 866-871-9963 or email@example.com
- Forbes, February 11, 2021
- Reuters, February 23, 2022
- CNBC, February 15, 2022
- Milwaukee Journal Sentinel, February 11, 2022
- Columbia Threadneedle, September 2016
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