As summer wraps up, the kids head back to school, and the weather becomes crisp, I can’t help but remember the ice storm that hit Portland earlier this year during one of the coldest weeks.
High Hurdle
The Calm after the Storm
While it was a relatively quiet week of macroeconomic news, investors are still busy making sense of the inflation and interest rate paradox: that is, inflation stoking recession fears, but also rising rates to combat inflation also stoking recession fears.
Shifting Demand
As new parents, my wife and I have been experiencing the ongoing formula shortage firsthand as we prepare for our little one to start daycare in June. The search for formula reminds me of the early days of the pandemic when life turned into a competitive “treasure hunt” due to supply constraints and a drastic change in consumer demand.
Tug of War
Investors buffeted by the ongoing correction in stocks and bonds could be forgiven for asking this question. The Fed’s aggressive half a percentage point increase in interest rates last week coupled with another report of elevated inflation earlier this week are serving to continue the turbulence investors have experienced so far this year.
What Really Matters
With an eventful first quarter now in the history books, we can safely say that the elevated levels of volatility that we predicted for 2022 are now in play.
Under Pressure
Our 2022 Investment Outlook features the Superman and Clark Kent theme, a metaphor referencing past extraordinary economic stimulus provided by the Federal Reserve and the U.S. government during the COVID-19 pandemic, as well as the supercharged earnings growth that served as a key tailwind for stocks last year.
Return to Ordinary
In our Outlook 2022 publication titled "Extraordinary to Ordinary" we highlighted that more volatility would be a feature of 2022. Volatility was extraordinarily high in 2020 during the zenith of the COVID-19 crisis and well below average during the robust economic recovery of 2021. This year we expect an environment of more normal volatility.
Preparing for Volatility and Alarmist Headlines
Cole Interviewed by KXL Radio
Cole and Lago Quoted in Portland Tribune
White Knuckles
The rollercoaster ride continued this week as stocks moved at least 2 percent every day; however, with all of that volatility the S&P 500 was up 1 percent.
Fear Is Only as Deep as the Mind Allows
Kingda Ka at Six Flags in New Jersey is the tallest and fastest roller coaster in the United States. Imagine being on that coaster.
Rumors of the Market’s Demise Have Been Greatly Exaggerated
On Wednesday at midday, the global financial media held their collective breath as the benchmark U.S. Treasury Yield Spread (2-year/10-year yield) inverted. Then, as they exhaled, minor hysteria ensued.
Turning the Page
As we look back on 2018, we can summarize the year as one where volatility emerged at the same time equity markets and the economy diverged enormously. In fact, 2018 is estimated to produce the strongest economic growth since the Global Financial Crisis at 3.0 percent.
The Present We Didn’t Ask For
While expectations were for the Fed to raise the federal funds rate by 0.25 percent, there was a small glimmer of hope that they may hold pat.
More Attractive Valuations
As we expected at the beginning of the year, S&P 500 valuations have contracted year-to-date. Typically during an economic expansion, we see stocks move higher with earnings. Investors are willing to pay more for those earnings with the assumption that growth will continue.
A Tale of Two Headlines
Charles Dicken’s iconic tome illustrates aptly the interplay between earnings news and economic news of late. Every day it seems good earning news is complemented with slowing economic news and vice versa. Recent market volatility has pushed cautious investors to the sidelines and those that remain are riding the markets up and down with every recent news release.
Fire and Fury
The S&P 500 officially entered correction mode this week, pulling back approximately 10 percent from the January highs.