Broker Check

Client Emails

Client Centered

Looking forward to the second half of 2022...

Greetings,

 

The first half of 2022 goes down as the worst for the U.S. stock market (as measured by the S&P 500) since 1970.  Interestingly, in 1970, the S&P 500 lost 21% in the first half of the year but recovered 27% in the second half of the year.  Hopefully history repeats itself.

 

The first half of the year can be summed up with one word…Fear.  Fear that the Federal reserve will raise interest rates too aggressively to fight inflation which could inevitably push the economy into a recession.  There is some good news, however, starting to surface that I feel will lead to the Federal Reserve tapping the brakes on rate hikes sooner than what the market is pricing in.  Money supply growth is finally starting to slow down - the unprecedented growth in the money supply, driven by government stimulus is likely the leading cause of inflation the last twelve months. The FED’s preferred inflation gauge, Personal Consumption Expenditures has fallen for the second month in a row and commodity prices, which are a leading indicator of inflation, are starting to decline.  I pulled up charts from the Wall Street Journal of several commodities and you might be surprised to know that from their peaks a couple of months ago; lumber is down 39%, wheat is down 29%, crude oil is down 15%, wholesale gasoline is down 19%, copper is down 23%, natural gas is down 40%, silver and gold are down 25% and 11% respectively.  China has finally reopened, shipping costs are starting to fall (down roughly 27% per the Global Container Freight Index) and supply chain constraints are easing, all of which should also help tame inflation.  The economy is already slowing down significantly from last year which should start to ease the demand side of the equation on inflation as well.  Bottom line, it appears the FED rate hikes are starting to work through the system and we may have had peak inflation a couple of months ago which could give the FED reason to pause later this summer or early fall.  Corporate earnings estimates, while likely to come down, have thus far shown remarkable resiliency in the face of it all, still expected to rise 10% on the year.  Add it all together, and investors will likely be very happy they rode out the storm of 2022.

 

Please let me know if you have any questions.  And, have a Happy and Safe 4th of July!

 

Regards,

 

Larry