CFS ViewPoint – May 4, 2022 – Addressing Current Market Volatility
In the immortal words of baseball legend Yogi Berra: “It’s Deja Vu all over again”
Current Markets: This correction reminds us of late 2018 when the Federal Reserve threatened to raise interest rates to slow down what they felt was an overheating economy. In the past few months, the threat of the Federal Reserve raising rates and the actual raising of rates by the Fed has again pushed markets lower. This coupled with the situation in Ukraine, the lingering Covid headlines, inflation worries, and the pain at the pump, (to name just a few of the stressors) have contributed to the angst investors are feeling. Markets have already reacted to these problems. Stock prices have already dropped. Markets are forward-looking. Much of the damage has already been done and is built-in. We have had several years of outstanding gains in our investments. Occasional corrections are inevitable, unavoidable, unpredictable, and cannot be “side-stepped.”
Ukraine: This may go on for a while. From a humanitarian standpoint, it’s heartbreaking, and the sooner it ends the better for the people of Ukraine. From an economic standpoint, other than a temporary supply interruption in grains and some mining of metals this situation is not a large economic story.
Inflation: It is a real issue and one that we all feel each and every day. It is, however, beginning to slow down. Rising interest rates will continue to combat inflation. The stock market has provided a historical hedge against inflation over the years. Many businesses can pass along price increases and increase their profits which reflect positively on their stock prices. The majority is centered on energy/oil/gas prices and used cars. Computer chip shortages have slowed new car production so used cars have gone up in value. This is a sign of a strong consumer wanting to buy cars. We are starting to see oil/energy and many commodity prices drop a bit in recent weeks. Supply chain delivery and shipping backlogs are improving. We think inflation will calm down later this year. Coming out of Covid lockdowns and factory closings has resulted in not enough products produced to satisfy consumer demand. Therefore, the unchangeable laws of low supply and high demand force prices up.
Jobs: Very low unemployment plus covid relief payments to many citizens in the past few years have resulted in more disposable income for consumers. People have jobs and money. Job security levels are very high and this leads to spending.
Recession: We reject the “gloom and doom” commentary about a recession anytime soon. Job growth is strong. Wages are up. Covid is largely receding, and travel/entertainment is re-opening. Cruise lines are booking higher than before covid. The housing market is strong and will not be ruined by 5% mortgages. Recessions are usually preceded by massive job cuts, factory closings, and large amounts of unsold inventory in many industries that has to be sold off at sale prices. Nothing like this is occurring.
Patience Pays Off: Wealth is accumulated when long-term patient investors are willing to wait for a rebound. Volatility is a normal part of long-term investing. Meaning several years, not just a few months. Rebounds occur much faster than many wish to believe. The people that became more conservative usually miss much, if not all of the rebound and greatly reduce their returns over time. Two of the biggest detriments to an investor’s success have remained the same for as long as there have been markets: fear of short-term dips and losses while the fear can manifest itself in investors, or advisors for that matter, trying to time the market. A long-term approach combined with a well-diversified, professionally managed strategy that considers global economic changes and trends when adjusting course in order to maximize returns is the best way to attain investment goals.
The end of the world is not upon us. Investors with longer than a few months’ time horizon, would be wise to stay the course and enjoy the rebounds which have happened quicker than most perceive. We are extremely confident in what we have written above and our approach in general. We understand that these ups and downs that we have all experienced, and to a certain extent will continue to experience, are anxiety-producing and not easily tolerated by any of us. So as always, we are here and available for any questions or concerns you may have as well as a more in-depth conversation about what may be of particular concern to you. Please do not hesitate to reach out to us. Thanks, and have a great day!
Brian, Arnie and Dan
As usual this commentary is based solely the opinions of Brian Cassidy, Arnie Magid and Daniel Kelly. Nothing in the above written material is endorsed by, or written by, or provided by Cambridge Investment Research, Inc., or by any other outside party or firm.
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