Markets rarely give us clear skies, and there are always threats to watch for on the horizon. But the right preparation, context, and support can help us navigate what lies ahead in the financial world we operate in. So far, this year hasn’t seen a full-blown crisis like 2008-2009 or 2020, but the ride has been very bumpy. We may not be flying into a storm, but there’s been plenty of turbulence. How businesses, households, and central banks steer through the rough air will set the tone for markets over the second half of 2022.
The sources of turbulence are clear. A global economy that was already vulnerable to inflation from supply chain disruptions, tight labor markets, excess stimulus, and loose monetary policy then came under more pressure from Russian aggression in Ukraine which added sharply rising commodity prices and has pushed Europe on the brink of recession. The effects of these forces have included renewed pressure on interest rates, which hurts bond investors and the so called 60/40 investor. The most recent reading on the Consumer Price Index for June showed continued price pressure with index rising to 9.1% year over year inflation. This has substantially contributed to tightening financial conditions, and a much more aggressive stance by the Federal Reserve (Fed) along with other global central banks. Add in the typical market challenges of a midterm election year and the third year of a bull market, and it’s no surprise it’s been a very bumpy ride. Those are quite a few reasons to be pessimistic or scared as investors.
Understandably, rising prices, slowing economic growth, and a challenging first half for both stocks and bonds have many investors on edge, and outright fatigue from more than two years of COVID measures. But investors remember with your intellect and not feelings, the markets are ALWAYS forward looking, it’s important to remain focused on what lies ahead, not what has already occurred. There will most certainly be challenges ahead in all investing environments, but there are also some tailwinds that don’t get enough headlines such as a strong job market, resilient businesses, and the likelihood that inflation will soon start to slow. Markets historically can get a little lift from lower uncertainty around elections as midterms approach.
Turbulence cannot be completely avoided, but it also need not deter us from making progress toward our financial goals. The LPL Financial Research department has spent countless hours have been spent focused on the volatility felt in 2022, but more so, what are we doing to position portfolios for the recovery, when that happens. There are many cycles that are intertwined and have dramatic effects on the markets. Cycles like economic cycles, credit cycles, the business cycle, and market cycles. What I often observe is how easy the everyday noise can take away from the perspective of where we are in the cycle. Afterall, we do not know where we are going, but we sure as heck better know where we are. An understanding of where we are in cycles allows us to have clarity and remember that cycles don’t start and stop, they peak and trough, and then peak again. Without knowing where a trough or bottom of a cycle is doesn’t appear to be very relevant or a smart proposition to invest on. Rather, investing when fear and pessimism is highest is often associated with attractive long term entry points.
In LPL’s Midyear Outlook they focus on navigating the turbulence and is designed to help you assess conditions over the second half of the year, alert you to the challenges that may still lie ahead, and help you find the smoothest path for making continued progress toward your goals. When times are turbulent, the surest path toward progress remains a sound financial plan centered around your goals and long-term planning. Certainly, this advice must come from a dedicated professional who operates under strict ethical and moral principles.
Please contact me if you have any questions. Stay safe and stay the course.
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
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