Summary video: click here (4 minutes)
While 2022 was expected to finally deliver some hope and calm after two years of chaos, the first half of the year has resulted in the exact opposite. Our core economic themes of inflation and rising interest rates reverberated throughout markets and the economy, inflicting pain on investment portfolios across the risk spectrum. It’s been a stark reminder of the importance of a robust financial plan anchored in diversification and even more importantly, discipline.
In sifting through the noise to analyze real impactful data to summarize second quarter results, the importance of rhetoric rose to the top. The Federal Reserve uses monetary policy to manage inflation and steady the business cycle. However, the Fed’s rhetoric–communications signaling their future intentions–is possibly its most important tool. Consider that capital markets price in future expectations every day with every trade, so when the Federal Reserve swings the pendulum of its rhetoric from transitory and dovish (low rates) to structural and hawkish (high rates) within a two month period, the market reacts immediately. This was a key driver of Q2’s continued volatility, though we don’t believe it fully reflects the broader economy’s picture.
As is often the case, an economic tug-of-war carries on as investors focus on the negative headlines while discounting the silver linings. How ‘normal’ is this year’s market? Where are we with inflation? And ‘is it recession, or not recession?' You might be surprised…
While a mixed bag of economic and market indicators may continue to be reported, don’t expect news outlets to highlight any positives. Advertisers don’t get excited about neutral headlines. Let this serve as your quarterly reminder that only your family’s personal headlines warrant a change to your financial plan or portfolio, so always contact us in that event. Otherwise, stay disciplined. It isn’t easy, but it’s worth it!
Sources: Q2 2022 Index Returns dimensional.com, Lordabbett.com Midyear Outlook 2022, Fred.com, BLS.gov, US Bank Mid Term Elections June 2022, WSJ Falling 'Commodity Prices Raise Hopes That Inflation Has Peaked' July 13 2022
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