Making Market Sense of Rates, Russia and Real Inflation
Portfolio strategists explain why fears about rates, energy prices, inflation and recession may be overblown.
- While the first Federal Reserve rate hike happened as expected, the path of future hikes isn’t assured; it will be data dependent.
- There are three likely scenarios for the Russia/Ukraine conflict, but it’s less about negotiations between Russia and Ukraine than between Russia and the West.
- Inflation is still top of mind and energy prices are likely to remain elevated even when we have a resolution to the conflict.
- But today’s high gas prices are not your parents’ energy shock. Energy intensity has fallen significantly since the 1970s – think more fuel-efficient cars and appliances.
- Risk of recession may be overblown, as household and corporate balance sheets are still strong post-Covid.
- US consumption data is ticking higher and is still below the pre-pandemic numbers. Consumers are engaging in revenge spending, with upticks in airline reservations and vacations despite complaints about higher prices.
- The Fed isn’t tightening into a slowdown: Demand remains strong and we are likely in the early to mid-stages of recovery.
All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.
CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.