From Collins Language, “If a policy or a situation applies across the board, it affects everything and everyone in a particular group.”
The Q1 downturn was across the board for all the major market asset classes-- U.S., international, stock and the bond market were all down substantially in the first quarter.
The news has caught up with us. There’s inflation at a forty-year high (7.9%), a war in Ukraine dragging on, interest rates rising at a rapid pace (5-6 expected this year), recession already likely in Europe, and increasing the odds of one in the United States in the next two years.
The booming growth in the economy (GDP up 4.8% in March) and staggeringly low unemployment (50-year record low, 3.8%), are not enough to offset the market jitters. That said, while we had a 5% reduction in the S&P 500 in Q1, many of us are surprised it hasn’t turned much further downward.
Demand is still outstripping the supply of most goods and services in the economy. Wages are increasing across the board but at a rate lower than that of inflation. This is not helping most Americans who live paycheck to paycheck. Savings from stimulus money is, or has already run out, and yet we still face a worker shortage leading to some 11 million job openings in the U.S.
The housing market is softening, in part due to an average 5% thirty-year fixed rate mortgage. Where goes housing often goes the rest of the economy.
While the risk of recession in the near term (i.e. this year) seems remote, the more likely risk is that of “stagflation.” That’s a period of inflation combined with a decline in economic growth (GDP). Stagflation is usually the pre-cursor to recession. If prices stay elevated, consumers will eventually curtail their spending. In a 70% consumer economy, like the U.S., that could lead to slower economic growth.
The U.S. stock market still appears overvalued. It will look compelling to me at another 5% reduction in valuation. That’s no reason to engage in mad selling but it maybe a reason to raise cash levels somewhat. Further, the bond market is starting to look attractive. The ten-year Treasury is approaching a 3% annual return. It’s up a half-percent just this month. It sure would be nice to see yields give us the ability to make some money in the bond portion of our portfolios.
Ron
Attestation Statement: I Ron Gambassi hereby attest and affirm that the enclosed sales literature or advertising package contains no false or misleading statements or misrepresentations of material facts, and that all information set forth therein is in conformity with the Company’s most recently amended registration statement as filed with the Department on or about September 2021.
Data sources: U.S. Dept. of Labor, Bloomberg News, Standard & Poor’s, Bankrate Monitor, & The Wall Street Journal.
