Inflation, inflation, inflation…When will it go away? - Q3 2022 Review
With the 3rd Quarter of 2022 behind us, what have we experienced? Inflation, and measures to combat it. The consequences of which are reverberating across the world economies and markets. The markets have not digested the onslaught of interest rate hikes around the world well. Stock and bond markets continued to fall through the end of the 3rd quarter. Energy continues to be one sector of the economy this year to benefit from inflation. This unfortunately has been at the cost of the consumer (you and me) regardless of whether you own a Tesla. The energy sector impacts every facet of life that modern needs demand. From powering our homes, shipping goods, and creating the materials needed to manufacture just about everything, we need energy resources mostly derived from fossil fuels. Increase in energy costs is a hinge on the inflation door that shuts down economic and market growth. The other hinges supporting this inflation door are housing costs, price of consumer goods, and overspending by world governments to combat the effects of the COVID 19 global shutdown. The monetary policy governments deployed to stimulate economies to provide liquidity, money for you and me to spend during and after COVID 19, partnered with manufacturing shutdowns and supply chain issues, increased the price of consumer goods for the limited products we found on the shelves of stores around the world. These conditions became the fuel for flaming the inflation fire we face today. The inflation data reported this quarter continued to put pressure on the Federal Reserve and Central banks around the world to continue to be aggressive in raising interest rates. These moves have pushed slowing economies into recession territory with all 11 sectors of the economy reporting negative performance in the 3rd quarter.
There may be some light in this inflationary darkness pointing to an end of this global interest rate hike cycle. The first economies to raise interest rates last year are now the first to stop their rate hikes. In August Brazil stopped raising interest rates. Norway is signaling it may be at the end of its interest rate hike cycle. Economic data is showing a drop in commodity prices and a leveling of home prices due to higher mortgage interest rates. Supply chain stress has eased due to weakening demand which has allowed supply conditions to improve, leading to a decrease in consumer price pressures. Lastly, labor markets continue to grow. Is it possible to ward off a deep recession? This waits to be seen. The prospect of which has caused investors to continue to be on edge this quarter.
As advisors we are called to calm the nerves of investors in the storms we face. Interest rates accelerating for fixed investments like Savings Accounts, Money Markets, Certificates of Deposits, Fixed Annuities, and Government I Bonds provide for peace of mind to combat the volatility experienced in the stock and bond markets. Utilizing these investments add to the strategy of diversifying, rebalancing, and dollar-cost-averaging into investments to bolster the opportunity for long term growth, while buffering the volatility you would experience by indexing alone.
We are committed to working with you to ensure the investment strategies we design are in line with an investors risk tolerance. If your circumstances have changed, please do not hesitate to contact us. Thank you for the opportunity to serve you.
Abundance to you,
Scott Miller
Partner
