March 14, 2022
By Mark Sauer
Inflation persists. War in Ukraine continues to affect the global economy. Political parties and their media machines polarize society. Investors anxiously await further rate hikes by the Fed. And Speculators drive commodities into a yoyo effect.
Whoa – sounds a bit scary? Don’t worry – we got this.
Times are uncertain. But I have faith in the systematic approach that we employ which will arm us with the timely discernment we need to manage assets with the upmost confidence. I’m an opportunist and a realist – and I’m always optimistic. However, I believe seeing things as they are and not how we want them to be is the most spiritual thing we can do. We must see reality as it is, meet it, and then make our best, most grounded and heartfelt decision from that place.
Having said that. I believe right now presents an incredible opportunity to grow personal wealth AND effect positive change. Market resets, contractions, corrections – or whatever you want to call them – open us to a moment in time whereby we can allocate cash and reallocate capital invested for our next expansion. How we allocate – as a collective – will drive the growth and direction of our economy. Capital input equals capital output.
Now is not a time to run for the hills, rather, now is a time to pay close attention to the alchemical nature of the market. Financial capital, money (energy) – the life blood of our society – is the alchemy between different forms of real capital. “Real” capital is tangible and meaningful – it is the aspects of society we would need regardless of financial capital’s existence. “Financial” capital is simply a mechanism between real forms of capital – a means of exchange &/or manipulation, a bartering tool. Real capital is the underlying foundation of what our economy truly is and needs to function.
Allocating our money to companies that create the greatest social returns in this time may also yield the best financial return. What we need most – what empowers our society – will create the most value/wealth. When we invest with this principal we engender a virtuous cycle that drives present returns, future growth and opportunity – both in business as usual and in improving the welfare of customers, employees, suppliers, and communities.
Anyways – I digress. If you’re looking to better understand how you can allocate in this time to create wealth and effect positive change please reach out to us.
Below, you’ll find a market & economic update – by the numbers.
Warmly,
Mark Sauer
Economic Update
- Inflation Persists: February Consumer Price Index data clocked in at its highest annual rate since 1982, up 7.9 percent. Gas, groceries, and shelter were the biggest contributors to the increase. Inflation-adjusted earnings slipped –0.8% in February, as pay failed to keep up with rising costs.
- Jobs Data: Weekly jobless claims were slightly above consensus at 227,000 vs 218,000 expected, but still at low, pre-pandemic levels. The Federal Reserve’s closely-watched Job Openings and Labor Turnover Survey (JOLTS), showed a jobless rate of just 3.8%, albeit on a one-month lagging basis. With the economy near full employment and inflation running hot, the FOMC has no choice but to raise interest rates when it meets next week.
- Rate Hike Expectations: The odds of a “double”, 50 basis point rate hike have faded to near zero after Jerome Powell indicated a single 25 bp hike would be appropriate. However, with many market participants arguing that the Fed needs to act more aggressively, investors will be closely watching for any indication of the Fed’s next move when it meets next week. With inflation data running hot already and the war in Ukraine only fueling the fire, the chances of a FOMC policy misstep have increased dramatically.
Market Update
- Global Equities: Continued war in Ukraine kept equity markets in check, despite a strong mid-week bounce. The S&P 500 dropped -2.8% in weekly trading, the Nasdaq was down –3.5%, and the Dow Jones Industrial Average lost -1.9%. Developed International stocks fared surprisingly well in comparison, down just -0.6%. Emerging Markets, already reeling from the Russian invasion of Ukraine, were further punished after several US-listed Chinese companies triggered warnings for failing to comply with SEC audit request rules. Emerging market stocks closed out the week with a loss of -4.6%.
- Fixed Income: 10-Year Treasury yields, which had been pressured by a flight-to-safety in response to the war in Ukraine, reversed course in advance of the March FOMC meeting and surged back above 2%. High yield corporate bonds continued to struggle amidst elevated concerns of recession on the horizon, dipping -2% during the week, putting the iShares US High Yield ETF (HYG) year-to-date losses to –6.3%. High yield bond ETFs and mutual funds saw another –$1.6 billion in outflows during the week ended March 9th, per Lipper data.
- Commodities: Oil prices saw wild swings during the week, first surging as high as $130 a barrel during intraday trading and then falling down to around $109 by Friday. The cause of the reversal was comments from the United Arab Emirates calling for increased OPEC production. Other commodities continue to see unheard of volatility, the most notable being nickel, which more than doubled to $100,000 per ton before the London Metal Exchange halted trading. Russia accounts for roughly 10% of the world’s nickel mining production.
Market Data Supplied By Hanlon Investment Management.
