The first four months of 2022 have been quite a ride in the financial markets. One day the stock market drops (Whoops) and the next day it recovers (Whoopie). It’s enough to make even long-term investors shake their head and wonder what’s next.
Financial markets hate uncertainty, and that is what our world is full of right now. Inflation is at a 40-year high, which should not be a surprise to anyone when one considers how much money has been poured into the economy over the past two years. The Federal Reserve has gotten behind in the battle against inflation and is now playing catch up. It’s likely the Fed will raise interest rates again in May and maybe even a few more times this year.
The Gross Domestic Product report for the first quarter of 2022 came in at a -1.4%, meaning the economy contracted. That is now raising the concern of actually slipping into a recession. There are still severe bottlenecks in the supply chain making it harder to get goods and more costly. COVID-19 is causing some major shutdowns in China, which doesn’t help the supply chain issue. Russia’s invasion of Ukraine has thrown uncertainty into the future of eastern Europe and what Putin’s real goals are.
We, here at Legacy, feel pretty certain that the Fed will have to continue to raise interest rates throughout the year in order to bring inflation down. Bonds, especially those with longer maturities, are not the place to be in a rising rate environment. So we are looking at shorter maturity options for our bond positions as well as other types of income producing options that will fare better in a rising rate environment.
The Fed is walking a real tightrope in trying to bring the economy in for a soft landing. That is slowing the economy enough to bring inflation down without sending the economy into a full blown recession. Until some of the headwinds the economy is facing die down, we feel stocks are going to have lots of “whoops” and “whoopie” days throughout the year and at the end of the year, returns on both stock and bonds could very well be flat to negative.
Our past experience with these kind of financial markets has taught us the best strategy is to hunker down; use the “whoops” times to do some strategic buying and rebalancing and do some tax loss harvesting in non-qualified accounts. The past has also shown us that these kind of times are great times to be adding to your investments as the volatility will allow you to pick up quality investments at bargain prices.
We hope you have found this brief commentary to be helpful and we hope you will always reach out to us with any concerns you may have.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice. Copyright ©2022 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.