Market volatility, rising oil and wheat prices, and the Russo-Ukrainian conflict have led the American public to question, “Are we a recession?” The answer is that no, we are not currently in a recession. This newsletter is going to talk about the major economic forces at play and what it all means for the average American.
The only thing constant is change
It’s no surprise to many following that market that 2022 got off to a rocky start, and volatility has been constant. There have been 4 days with market fluctuations of 2% up or down. By comparison, there were zero such instances in the year 2017, and seven total last year (Blackrock, 2022).
It’s likely we’ll see more volatility as we move forward this year. Government interventions propped up the economy by infusing it with liquidity, and now consumer confidence (closely linked to consumer expenditures) has fallen.
There has been a rotation in sectors, with growth stocks falling out of favor due to their higher sensitivity to economic variables. Defensive sectors such as finance, consumer staples, and energy are quickly becoming the darlings.
Interest rate hikes
The Fed hiked rates at the March meeting by 0.25%. While this was a necessary move to curb inflation, it appears slightly redundant with the natural fall off in consumer spending that has occurred due to higher oil and wheat prices, as well as supply shortages. It is the same scenario with mortgage rates which have risen in tandem with the rise in rates.
Inflation and the war
Inflation is now the highest since the 1970s and it’s clear the term “transitory inflation” doesn’t carry weight any longer. We anticipate that the war in Ukraine is likely to exacerbate these pressures.
What it all means
The key takeaway for investors is to stay the course, as market volatility is likely to persist in the future. Your best defense is aligning your risk tolerance properly with your life goals. If you would like to discuss your portfolio or financial plan, or have questions specific to your situation, please contact us.
BlackRock. Student of the Market. March 2022. Retrieved from student-of-the-market March 2022 BlackRock.pdf