At a Glance
- Russia and Ukraine are making progress in peace talks.
- Covid is quietly subsiding.
- Stock markets are searching for direction
- The Feds are threatening 50 basis point rate hikes
- Consumer sentiment is at decade lows and not a good sign
- Try a little Kenny G
In The News
Russia and Ukraine have begun peace talks as Russia is finding out Ukraine is a better opponent than originally thought. This is welcome news for the rest of the world, but so far it is just talk as bombing continues. There are now 3.9 million refugees who have fled Ukraine. The lion share of those refugees, 2.3 million have crossed over into Poland. Speaking of lions, I tip my hat to Zelensky and the rest of the courageous Ukrainians who fight for their freedom without good equipment and air support. They have truly defied the odds and fought with bravery and heart.
Where did covid go? Currently our daily deaths and infections are hitting lows we haven’t seen since last July. The BA.2 variant makes up about 55% of new cases. I’m happy to report that covid is quietly leaving the headlines and hopefully herd immunity is setting in for the long haul. My hopes may be dashed as these variants tend to come and go in spurts.
Markets
March has been a great month for stocks as they have rebounded by 3.6% from February’s lows. Time will tell how far the rally lasts as markets aren’t completely sanguine about the state of world affairs. Oil prices surged above 130 dollars a barrel as Western countries imposed sanctions on Russia. Oil has since come down from those highs and helped bolster stocks.
The markets are reacting to both good and bad news right now trying to find direction. One of the best reads of the month came from Robert Barone of Forbes. In my opinion his analysis of the economic and market trends is spot on. He spoke on the labor market and in particular the labor force participation rate going up some. That is positive news as it kept wage increases from continuing on their upward trajectory. He spoke of the economy slowing, facing inflation, high energy and high food prices meanwhile the Fed rate hikes threaten market vitality.
Economy
A shift among consumers has been subtle, but one that has compound effects amid the lack of fiscal and monetary support currently. Without the support of the government and federal reserve 2022 is shaping out to be a transition year away from big purchases. Consumer spending makes up about 70% of our economy where back in 1980 it only made up about 60% of the economy. Hence, the more consumers push back on higher prices the bigger the compounding effect on the rest of the economy. According to Suzane Kapner the trend of retail companies raising prices is stalling. Consumers are feeling the pinch of higher food and gas prices; in turn they are buying less as well as less expensive. This is not a good sign for discretionary spending on nonessential items and activities.
At the same time, we are feeling price shocks, the feds are pushing the breaks on the economy by raising rates. The short end of the interest rate curve is going higher than the long rates. The 2s and 10s rates inverted earlier last week and are 4 basis points apart as of 3/31/2022. The three-, five-, and seven-year treasury rates have already surpassed the ten year treasury and the three year treasury has surpassed the 30 year treasury. The front end of the futures curve is telling us the feds will raise rates sharply and then drop rates within the next two years. Put in layman’s terms, the fed is going to slam on the breaks and then within two years slam on the gas. Jerome Powel our Fed chairman has gone as far as stating Paul Volcker is one of his heroes. Volcker killed inflation back in the early 80s and he also killed the economy in two back to back recessions.
I had a client share an article (thank you) with me yesterday basically dismissing the flattening of the yield curve as “it is different this time.” When the yield curve steepens, long rates go high and short rates low, economists on both sides of the isle don’t hesitate to talk about growth and how much growth is ahead. But when the curve flattens and rates invert there seems to be plenty of economists that stick their neck on the chopping block and say, “this time is different”. The feds historical record is 11 recessions and 3 soft landings. Based upon the tone from Jerome Powell, I’m siding on the side of 11.
The Road Ahead
Now is a good time to assess your comfort level with your investments. To borrow from JFK, “The best time to fix the roof is when the sun is shining”. I expect markets will continue to be on the side of fear rather than greed throughout 2022 and perhaps into 2023. Markets cycle, America has a bright future ahead and these storm clouds will pass. If you find your blood pressure is up slightly upon reading this email, try listening to the Eagles, “Take it easy” or “Tryin”. If the Eagles don’t do it for you try a little Kenny G. That was one of my Grandpa Norm’s favorites.
Your situation is unique, please call me with any of your specific investment, retirement or tax planning needs.
Written By Sean West, CFP®️
Disclosure
This blog reflects the personal opinions, viewpoints and analyses of the White Cloud Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by White Cloud Wealth Management. The views reflected in the blog are subject to change at any time without notice. Nothing in this material constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.