Hitting the Brakes
The first six months of 2022 have not been short on downside volatility. The Ukraine/Russia conflict is certainly a factor, but we think the larger driver of the markets has been the proverbial free money punchbowl being taken away. Inflation was ignited by the excess money supply created by the government stimulus money and the use of leverage with all the cheap money available to institutions and individuals. The Covid stimulus money has now slowed to a trickle and the Fed has raised rates to 1.75%. The Fed is trying to hit the brakes on the economy and inflation.
The Fed has in so many words said they would like the US economy to move into a mild recession (aka soft landing). The question is can they navigate the current global markets and raise rates just enough to slow inflation, but not too much as to cause layoffs and a deeper recession.
Our view is that inflation will subside going into 2023 but will stay at higher levels then we have seen for quite some time, possibly in the 3-4% range. We expect the stock market to continue to be volatile.
Recessions and Bear Markets are normal parts of the investment cycle, but investors clearly do not enjoy the downside part of the cycle. Navigating through down periods with a steady hand is essential.
So, what should an investor do in this environment?
Our first suggestion is to keep enough short-term cash available so that you are not forced to sell over the next 12 to 18 months.
Second, Stay Invested…
Third, Stay Diversified…
Cash-Stay Invested-Stay Diversified
Do not hesitate to reach out with questions or concerns.
The Creekside Team