THE ECONOMY & MARKET
As of May 25, 2022
While it’s no surprise with all the news, the market is volatile this year. However, the economy is healthy and that’s the key to moving forward. Expect continued volatility at least into the fall/winter season. My evaluation of the proliferate of crosscurrents facing this market for a recession are based on my analysis of what I read and hear from investment managers, investment companies. The positive and negative issues include:
- Accelerating Inflation – Measured by the CPI hitting a 40 year high of about 8.5%, driven by gasoline and food price increases over the last 12 months.
- Wage Increases and Payroll Growth – Wages have increased about 5.6% for hourly workers probably, needed to attract more employees given the tight labor market. The Fed reports positive unemployment rates at 3.6% which is close to the pre-pandemic low of 3.5%.
- Yield Curve – Sign of rising concerns is flattening of the yield curve resulting interest rate increases. The current 0.5 increase May 4 and expected continued rate increases of possibly another 0.5% at the next meeting in June with more to follow. Negative sign for the economy as it points to a slowing at best, recession at worst.
- Leading economic indicators (LEI) – The Conference Board’s LEI March gain was 0.3% less than the previous month due in part to impact of the war in Ukraine. The pace and breath of the LEI suggests above- trend growth during the calendar year 2022. This positive trend helps offset the negative yield curve.
Conclusions – I expect market volatility and uncertainty to last into the fall/winter as we grapple with monetary tightening, rising interest rates, inflation concerns, and the high level of geopolitical turmoil. Corporate earnings prospects, the likelihood of equity volatility, remains strong. The outlook remains positive with rising dividends and higher levels of company stock purchase programs. The door remains open to possible buying opportunities on market dips.We still prefer investing by dollar cost averaging and remaining fully invested. Caveat, preservation of capital/ fixed investments suggest caution in that segment given expected interest rate increases in that sector.