April 28, 2022

Weekly Market Commentary | April 28, 2022

The Federal Reserve’s Ice Bucket Challenge…

Remember a few years ago when people raised money for charity by challenging others to pour buckets of icy water over their heads? Last week, the Federal Reserve poured a bucket of ice water over the United States stock market. Randall W. Forsyth of Barron’s explained:

“In the past week, Fed officials stepped up their rhetorical anti-inflation campaign, with Jerome Powell all but promising a half-point increase in the federal-funds target range at the next Federal Open Market Committee meeting, on May 3-4. And other Fed district presidents raised the possibility of more forceful action, including rate hikes of as much as three-quarters of a percentage point, something the Fed hasn’t done since 1994.”

The Fed’s goal is to slow high inflation, which has been exacerbated by the war in Ukraine and China’s coronavirus lockdowns, without pushing the American economy into a recession. The question is whether the economy is strong enough to continue to grow as the Fed tightens monetary policy – and opinions about that vary.

One participant in Barron’s Big Money Poll, which surveys institutional investors across the U.S., wrote, “It’s not as bad as people think…Yes, interest rates will rise, but earnings will also rise along with that. Profit margins continue to be very high, and employment is strong. It’s growth slowing down, not ending.”

Another participant disagreed, reported Nicholas Jasinski of Barron’s. “[The Fed] should have started the process of raising rates sooner so they could be more patient with the pace of increases…Now, they are going to be overly aggressive trying to play catch-up, and will probably go too far and slow demand down too much.”

Last week, major U.S. stock indices declined, reported William Watts and Barbara Kollmeyer of MarketWatch, and the real yield* for 10-year U.S. Treasuries was briefly in positive territory for the first time since the pandemic began in 2020, reported Jacob Sonenshine of Barron’s.

*When the term “real” is used with interest rates, it means the rate has been adjusted for inflation (the bond yield minus inflation). So, the real return is what investors would have after inflation.


https://www.barrons.com/articles/here-come-the-interest-rate-hikes-they-could-be-even-worse-than-you-expected-51650675298?mod=Searchresults (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/04-25-22_Barrons_Here%20Come%20the%20Interest-Rate%20Hikes_2.pdf)
https://www.bloomberg.com/news/articles/2022-04-22/fed-dashes-cold-water-on-shock-and-awe-hike-of-75-basis-points (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/04-25-22_Bloomberg_Fed%20Dashes%20Cold%20Water%20on%20Shock_3.pdf)
https://www.barrons.com/articles/stock-market-economy-investing-outlook-big-money-poll-51650659809?mod=hp_LEAD_1 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/04-25-22_Barrons_Bearish%20Now%2c%20Bullish%20Later_4.pdf)
https://www.barrons.com/articles/treasuries-real-yield-stocks-inflation-51650404673 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/04-25-22_Barrons_The%2010-Year%20Treasurys%20Real%20Yield%20Briefly%20Turned%20Positive_6.pdf)
https://www.bls.gov/news.release/pdf/empsit.pdf [Summary Table A]
https://navigatorresearch.org/wp-content/uploads/2022/02/Navigator-Toplines-02.23.2022.pdf [page 23]
https://news.gallup.com/poll/390350/satisfaction-low-economic-concerns-remain-high.aspx[1]8 https://insights.som.yale.edu/insights/narrative-economics-how-stories-go-viral

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Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
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