Inflation. This word continues to make news headlines, impact economic policy decisions, and challenge individuals across our country. On September 13th, spurred by a higher-than-expected August inflation report, US stocks suffered their worst day of performance in over 2 years.
Do not forget that before this year we enjoyed inflation well below the long-term average and extremely low interest rates since 2008. In 2020, we experienced a close to complete shutdown of the US economy and saw the government give out an unprecedented amount of stimulus to kickstart spending. So far, 2022 has been a difficult year for investors and this could be part of the payback for the relatively accommodating economic conditions we have benefitted from in the past 14 years.
It may feel like the future economic outlook is very dim and high inflation will never end. However, we must remember that most complex problems are not solved overnight, and glimpses of progress are still being made.
The US economy is the largest in the world and it takes a meaningful amount of time for prices to normalize. Federal Reserve Chairman Jerome Powell understands this as he made it clear that the Fed’s work of raising rates in their attempt to find price stability is likely not close to done. Nonetheless, the headline inflation number has fallen two months in a row and pressures are easing in a few categories such as gasoline, airfare, along with used vehicles. Also, the labor market remains strong as more workers return to full time positions.
Recently, Ukraine has held Russian attacks at bay and recaptured parts of its country. While it may have short-term reactions to geopolitical events, we have continually witnessed the market’s long-term resilience over 100+ years of American history.
We anticipate a likelihood of sustained volatility in the next several months. This is normal in the market as we navigate the traditionally unfavorable months of September and October along with midterm elections. It’s a reasonable possibility that investors may not see typical market stability until sometime next year.
While it oftentimes seems slow or even non-existent, we believe progress is still being made. As investors, it’s essential that we remain calm and disciplined in our investment approach during all types of market conditions, including challenging ones. Thank you for your continued business and confidence.