Article 4 of 5: 1st Quarter Commentary

The latest 7% year-over-year inflation jump is the highest since 1982. 

The Federal Reserve told us almost all year that inflation was “mostly transitory”, supporting market prices as energy, automobile and food costs soared.  The Fed finally acknowledged in the fall that inflation is persistent and started closing the cash spigot to keep it from spiraling.  Quantitative Easing to the tune of $150 Billion in monthly bond purchases is ending, and we expect Fed rate increases to begin in March.   

Still, given what we know today, stocks should see a modestly positive 2022.  Investors will be more discerning as they recognize the tailwinds of the past becoming headwinds for the future.  Good companies will continue to perform while the economy remains strong, with plentiful consumer spending job growth.  Markets recognize that recession is not on the horizon, yet volatility and risks are now more elevated.  So, risk reduction is prudent now. Provided the Fed doesn’t raise rates too fast or for too long the economy will remain resilient (and no, their record isn’t good).  Investors need to recognize that risks are higher, that quality and price matter more now, and that expectations must be reined in. 

Read the last installment of this series, including tactical ideas, click here.

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