Winter is behind us, and spring is here, along with its positives of longer days and warmer weather. But lingering from winter remains the cold reality that market volatility continues to dominate headlines; however, we see many signs of positive change coming.
Recent market volatility stems from the negative investment scenario playing out, which includes persistent heightened inflation. Many believe that the Federal Reserve (“the Fed”) is not doing enough, but they’re in the difficult position of attempting to tame inflation while not causing an economic slowdown.
The reality is that inflation is likely peaking, the Fed is poised to raise rates materially beginning this week, and the economy and corporate earnings remain in good shape. Wage gains have stabilized, core personal consumption is past its peak, and corporate earnings have remained strong except for a few high-profile names with high valuations.
We remain positioned for inflation to moderate from here, with short-term interest rates rising and catching up to the diminishing inflation rates. Further, we expect the economy and GDP growth to slow but stay positive, supporting the scenario of good corporate earnings.
So far this year, commodities and other alternative investments have helped the most to dampen volatility and preserve capital, along with our conservative tilts to stocks and bonds. While we plan to remain well-diversified, we would not be surprised if stocks are the best performers for the rest of the year due to investor sentiment being at the lowest readings in decades, strong earnings, and improved valuations.
We expect the 0.5% rate hike at this week’s Fed meeting to be a welcome event. We see green shoots of opportunity for patient investors based on the Fed’s actions, current investor sentiment and positive economic and earnings data.
Please contact us if you have any questions.