#inflation

The first half of the year was difficult for investors as the Federal Reserve (the “Fed”) began an aggressive tightening cycle to fight inflation sitting at 40-year highs and risk-off sentiment pervaded.

Here are 3 things you need to know:

1. The S&P 500 index dropped 20.6%, marking its worst first half of a year since 1970.
2. Bonds, as measured by the U.S. Aggregate Index, had their worst first half on record falling 10.4%.
3. Bitcoin fell nearly 60% in the first half but cryptocurrencies like Ethereum, Solana, and Cardano fell between 67-82%.

Sources:

1. Sources: J.P. Morgan Asset Management – Economic Update; Bureau of Economic Analysis (www.bea.gov); Bureau of Labor Statistics (www.bls.gov); Federal Open Market Committee (www.federalreserve.gov)
2. Indices:
   • The Barclays Aggregate Bond Index is a broad-based index used as a proxy for the U.S. bond market. Total return quoted.
   • The S&P 500 is designed to be a leading indicator of U.S. equities and is commonly used as a proxy for the U.S. stock market. Price return quoted.
   • The MSCI ACWI ex-US Index captures large and mid-cap representation across 22 of 23 developed market countries (excluding the U.S.) and 27 emerging market countries.  The index covers approximately 85% of the global equity opportunity set outside the U.S. Price return quoted.
   • The MSCI Emerging Markets Index captures large and mid-cap segments in 26 emerging markets. Price return quoted (USD).

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Stocks rebounded in March even as the Russia/Ukraine conflict continued to escalate. The key message from the Federal Reserve is that it is focused on fighting inflation and is prepared to hike short-term interest rates steadily and reduce its balance sheet until it reaches its goals.  Q1 earnings season will kick off the week of April 11^th and although Wall Street analysts have recently scaled back their expectations for quarterly earnings, they’ve been raising their forecasts for the rest of the year, according to FactSet.  Earnings typically are the key engine of equity returns over the long run.

Here are 3 things you need to know:

1. U.S. inflation data showed price increases hovering near 40-year highs. The report showed a further rotation back to services spending as the economy, and away from goods spending.
2. Jobs data showed a robust labor market with the unemployment rate dropping to 3.6% from 3.8%, while the labor force participation rate ticked up to 62.4%.
3. The 1^st quarter was one of the worst quarters for 10-year Treasury bonds since the early 1980’s. The Treasury yield curve inverted (higher yields for shorter-term bonds vs. longer-term bonds) between the 10-year and 2-year notes and 30-year and 5-year bonds, further stoking concerns of an impending recession.

Sources:

1. Sources: J.P. Morgan Asset Management – Economic Update; Bureau of Economic Analysis (www.bea.gov); Bureau of Labor Statistics (www.bls.gov); Federal Open Market Committee (www.federalreserve.gov)
2. Indices:
   • The Barclays Aggregate Bond Index is a broad-based index used as a proxy for the U.S. bond market. Total return quoted.
   • The S&P 500 is designed to be a leading indicator of U.S. equities and is commonly used as a proxy for the U.S. stock market. Price return quoted.
   • The MSCI ACWI ex-US Index captures large and mid-cap representation across 22 of 23 developed market countries (excluding the U.S.) and 27 emerging market countries.  The index covers approximately 85% of the global equity opportunity set outside the U.S. Price return quoted.
   • The MSCI Emerging Markets Index captures large and mid-cap segments in 26 emerging markets. Price return quoted (USD).

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Thomas Steffanci, PhD, Senior Portfolio Manager

The first link in the supply chain, the number of ships backed up in Los Angeles and Long Beach harbors, is in sharp decline as the accompanying chart from BCA shows.

The harder part is relieving the structural scarcity of trucks, drivers, and logistics (i.e., port workers, warehouse capacity) to decompress supply-side inflation. As this is a longer-term problem, even with a slowdown in aggregate demand in the quarters ahead, overall inflation (aside from base effects) is likely to be stuck in the 3-5% zone for some time.

To a large extent, Covid sterilized labor force participation rates, as the willingness and ability to work may have been secularly altered. With birth rates declining and older workers reluctant to return to the labor pool, long term inflation is unlikely to return to the sub-2% pre-pandemic levels. These factors among others will ultimately induce the Federal Reserve (the “Fed”) to alter their inflation target or else risk a policy-induced recession.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

February was a month of two halves. Hawkish central banks, high inflation and a strong U.S. jobs report dominated the first half of the month. However, the Russia/Ukraine situation has taken over the narrative for the second half of the month and has carried over into March. Our hearts and prayers go out to the people of Ukraine.

Here are 3 things you need to know:

1. Real gross domestic product (GDP) for all of 2021 grew by 5.7%, compared with a contraction of 3.4% in 2020, when the pandemic set in.
2. The growth outlook remains strong even after factoring in the expected pace of Federal Reserve rate hikes, with the labor market providing ample evidence of strength.
3. The Consumer Price Index in the United States rose by 7.5% in January compared with January 2021, the largest such increase in 40 years. Inflation should peak in the first half of 2022.

Sources:

1. Sources: J.P. Morgan Asset Management – Economic Update; Bureau of Economic Analysis (www.bea.gov); Bureau of Labor Statistics (www.bls.gov); Federal Open Market Committee (www.federalreserve.gov)
2. Indices:
   • The Barclays Aggregate Bond Index is a broad-based index used as a proxy for the U.S. bond market. Total return quoted.
   • The S&P 500 is designed to be a leading indicator of U.S. equities and is commonly used as a proxy for the U.S. stock market. Price return quoted.
   • The MSCI ACWI ex-US Index captures large and mid-cap representation across 22 of 23 developed market countries (excluding the U.S.) and 27 emerging market countries.  The index covers approximately 85% of the global equity opportunity set outside the U.S. Price return quoted.
   • The MSCI Emerging Markets Index captures large and mid-cap segments in 26 emerging markets. Price return quoted (USD).

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Late last year we gave you some tips on how to profit from inflation by investing in Series I savings bonds (I-Bonds).  You can buy up to $10,000 per person per year directly from Treasury Direct. But you can also fight inflation by buying an additional $5,000 in paper I-Bonds with your income-tax refund. You can ask to receive all or part of your refund in paper I bonds by completing part 2 of Form 8888 with your return. But your filing must be error-free to receive the assets.

Tax planning should be part of every individual investor’s financial and retirement plan. There are many strategies available for individuals and business owners, but it requires proper planning throughout the year. If you’d like to learn more about tax planning strategies unique to your personal circumstances, feel free to Talk With Us!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.