by Tim Carkin, CAIA, CMT
Senior Vice President
Over the past week the S&P 500 declined nearly 3% on persistent fears of inflation exacerbated by negative earnings reports from Walmart and Target, both of which were impacted by unexpected cost inflation. For the year-to-date, the S&P 500 has declined more than 17%. The good news from the week is that bonds have started to act more like bonds due to declining interest rates and a volatile equities market. This year, bonds and stocks declined at the same time, an unusual rate event that has only happened on an annual basis two times in the last 50 years. However, from last week to today, the 10-Year U.S Treasury bond declined from around a 3% yield to 2.78%, providing a hedge to the declining stock values.
This week, we sent a Capital Markets Update titled, “Is This as Bad as It Gets?” to clients detailing our view of the markets and the economy. Due to the elevated level of volatility in the capital markets, we wanted to emphasize the importance of the following takeaways:
Equities and bonds have largely priced in the Fed tightening Cycle
Inflation has likely peaked…but is persistently sticky
We do not foresee a recession in 2022
Remain overweight inflation compatible assets
To read more about our outlook on the current market environment, we encourage you to read our Capital Markets Update in full at the following link.