The Federal Reserve certainly is in, (and has us in!) a challenging situation! Current inflation readings are very elevated – last week registering a print of 7.5%. The major contributors are energy (up 27%), used-cars (up 40%), commodities (up 12%), and food (up 7%). Hard to believe food is only up 7%…..
We are hearing from several members of the Federal Reserve Board suggesting what needs to be done. Some are saying significant rate increases, while others are saying measured increases. I kind of wish we went back to the days when the Fed did NOT telegraph their intentions, as their words can create elevated volatility.
Raising interest rates has the possibility of further separating the haves and the have-nots! Very wealthy people can purchase homes/cars without loans, so rate increases should not deter their desire. While most others, who need to borrow to purchase homes and cars, will find financing more expensive as rates continue to rise. The difference between a 3% mortgage rate and a 4.5% 30- year rates is rather significant, and can certainly stop many from qualifying.
Last Friday, the stock market was attempting to rally in spite of the inflation rhetoric, then the Russia/Ukraine issue became highly elevated pushing markets back down.
Russia is a very large exporter of natural gas. The potential disruption if and when Russia decides to invade, can be temporarily significant.
Between inflation and Russia, we now have a lot to chew on. These issues will certainly be with us for the foreseeable future. A reminder is that investors should not panic, provided their portfolios are diversified and aligned to their planning and income needs.
Markets Last Week
Last week, the Dow dropped (.96%), the S&P 500 (1.79%) and the Nasdaq (2.17%). Small caps, as represented by the Russell 2000, rose 1.42%.
Over the pond, foreign stocks increased 1.43% and Emerging Markets were up 1.61%.
The 10 Year US Treasury yield did surpass 2% last week until the Russia/Ukraine issue became front and center on Friday, pushing the yield back under 2%, ending the week @ 1.95%.
As of last Friday, 2 sectors of the S&P are in the black. Energy is up 27.1% and Financials are up 2.7%. All others are currently in the red, hopefully for only a short period of time.
Last year I mentioned to all clients that this year would be challenging, with heightened volatility. Forget that I’m obviously not a fan of Chairman Powell, however I’m hoping he and his fellow Federal Reserve members can orchestrate a moderation of inflation without slowing down the economy. Chairman Powell, make me a fan!!!!!