A Textbook Example

Weekly Market Update | June 13, 2022

Highlights

The global equity market gave back recent gains as U.S. inflation took a step backward - rising from 8.3% in April to 8.6% in May. In the United States, the tech-heavy NASDAQ tumbled 5.6% as the 10-year U.S. Treasury yield surged 22-basis-points to 3.16%. The S&P 500 slid 5.1% while the Dow Jones Industrial Average closed the week off by 4.6%. Markets overseas did not go unscathed with European stocks sliding 5.6% and Japanese stocks edging 2.2% lower.

Inflation is created when too much money is chasing too few goods. It should not be surprising that inflation has reared its ugly head after policymakers spent $5 trillion on COVID aid and the Fed expanded its balance sheet by a similar amount amid disrupted supply chains. Hindsight is once again 20/20.

Today's backdrop is a textbook example of supply and demand trying to find a new equilibrium. Unfortunately, it is much more nerve-wracking to live through than to read about. With the Fed uncomfortable with the pace of inflation, an outsized rate hike that is over 50-basis-points (or perhaps another 50-basis-point rate hike in September) cannot be ruled out. However, we still believe that inflation may be in the process of topping out and that investors may be best served by remaining patient. After all, “time in market is often more important than timing the market.”

The next Weekly Market Update will be published June 27, 2022 as we observe the June 19th Federal holiday that commemorates the end of slavery in the United States.