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Q2 2022 Market Perspective: Inflation, Rhetoric, Midterm Elections

Posted on Monday, July 11, 2022

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


This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.


Index Disclosures:


Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.


Index Definitions:


Barclays U.S. Aggregate Bond Index: The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of fixed rate debt securities rated investment grade or higher by Moody’s, Standard & Poor’s, or Fitch rating services. All issues in the index have at least one year to maturity and an outstanding par value of at least $25 million to $1 billion based on the type of security. Indices are not available for direct investment and do not reflect any fees that may be charged.


S&P 500®: The S&P 500® index is an unmanaged index of 500 companies used as a representative sample of the United States economy. The S&P 500® index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.


MSCI Ex-US: The MSCI Ex-US index is an unmanaged index used as a representative sample of the global developed economy outside of the United States. The MSCI Ex-US index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charge.


MSCI Emerging Markets: The MSCI Emerging Market index is an unmanaged index used as a representative sample of the global emerging market economy outside of the United States. The MSCI Emerging Market index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charge.


The Russell 2000 index is an unmanaged index of the 2000 smallest companies in the Russell 3000 index. The Russell 2000 Index is used as a representative sample of the small companies in United States economy. The Russell 2000 index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.


The Russell 3000 index is an unmanaged index of 3000 companies in the United States. The Russell 3000 Index is used as a representative sample of the United States economy. The Russell 3000 index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.


[1] Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.


[2] Investments in emerging markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.



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