Timely insights to help you manage portfolios
Long-term investors are facing a number of challenges today. Multi-decade-high inflation is eroding purchasing power and portfolio values, and recent volatility across capital markets has made the investment landscape look perilous.
The US economy is showing signs that the post pandemic surge is beginning to moderate, but we do not think a recession is imminent. Nonetheless, stocks are near correction territory, consumer sentiment has soured to levels last seen in 2011, geopolitical tensions are elevated, and prices are higher everywhere; all of which challenge this view.
The war in Ukraine is causing surging commodity prices, COVID lockdowns in China are exacerbating strained supply chains, and 40-year-high inflation has prompted the Fed to aggressively tighten monetary policy. Together these dynamics are also creating uncertainty about future growth.
At the end of the day, active tax management is a way to take advantage of volatility. Volatility is a hallmark of the capital markets, but it also tends to derail investors and undermine their ability to reach their long-term retirement goals.
2022 will likely remain volatile for equity markets, as central banks normalize alongside persistently hot-inflation and geopolitical issues result in prolonged uncertainty.
While geopolitical tensions have reached a boiling point overseas, American investors have recently faced a set of potentially market-moving events at home: President Biden’s first State of the Union address and Federal Reserve Chair Powell’s testimony in front of Congress on monetary policy.
Despite the horrible human and social impact, the conflict in Eastern Europe is currently noise for the market. Time will tell how things evolve, but the key risk is that higher commodity prices – and energy prices in particular – fail to be transitory.
Geopolitical tensions involving Russia and Ukraine have been a source of market volatility, especially since February 11th when President Biden warned there was a “very distinct possibility” of a coming Russian invasion of Ukraine.
Rates have experienced some big swings recently, even though they have traded within a fairly narrow range over the past couple of months.
Chinese equities can still provide investors higher return and low correlation to other equity markets, while Chinese bonds can provide higher yields and low correlation to the global bond market.
Read the latest from Michael Cembalest, Chairman of Market and Investment Strategy, on the economy, markets and investment portfolios.
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