Because you know I'm all about that rate!
What the Market? - Mar 14, 2022
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What the Market?
As the Russian-Ukrainian conflict continues to escalate with further disruptions to supply chains and steeper economic sanctions, commodities continue to rise with gas prices going to record highs. Fun-fact, gas is now more expensive in LA than it was during the apocalypse in I am Legend. Well, this has all given Mr. Market a whole lot to smile about…psych! Triggered by fears of further inflationary pressures and the conflict in Europe, consumer sentiment has hit its lowest level since 2011 at 59.7. Anyhoodle, Mr. Market will be keeping an eye on the outcome of this week’s FOMC meeting as the highly anticipated interest rate hike is set to begin. Central bankers will need to operate with the precision of a bomb defuser to curb ever-increasing inflationary pressures and the possibility of a sudden economic downturn if rates are raised too quickly.
What’s driving the market?
The Fed? Yes, take a right down 18th Street NW, and you’ll find the Fed there between a rock and a hard place: Remember all the talk of supply chain improvements that were supposed to help rein in inflation this year? Welp, change of plans. The Russian-Ukrainian conflict has changed the macroeconomic context and intensified inflationary pressures. Investors' anticipation of a hefty (and probably needed) interest rate hike has been tempered by the immediate-term geopolitical risks and macroeconomic uncertainties. That tempered mentality may come back to bite us all as the Fed is unlikely to back down fully from its monetary policy tightening due to the already uncomfortably high inflation levels. Powell’s direct messaging regarding his support for a 0.25% rate hike has helped manage expectations, however, the messaging was so uncharacteristic of the Chairman’s usual fedspeak that it made us wonder, how uncomfortable is the Fed feeling? Talk about being stuck between a rock and a hard place. Investors will be focusing on any guidance regarding further monetary policy adjustments, and gauging the macroeconomic impact of the current global scenario on the US economy. Central bankers will have to be extremely careful with how fast they pull on interest rates without causing a recession. And you thought your job was stressful? Good luck to you, Mr. Powell.
What’s an investor to do?
With the media’s wild coverage of the Russian-Ukrainian conflict, the pandemic is beginning to feel like a vague memory from a dystopian past (even though China is registering its highest number of cases since early 2020). Some banks have increased the odds of an economic recession triggered by the expected economic slowdown from the combination of supply chain disruptions from the war in Europe and the already high inflationary pressures that will trigger higher interest rates. So much for big money, big money, no whammy!
Continue to focus on building out a defensive portfolio to weather the current volatility and shifting macroeconomic environment. Consider investments in:
Liquidating some of your portfolio and moving to cash
Defensive stocks (think non-cyclical, utilities, consumer staples, healthcare) and high-grade bonds;
Commodities and aerospace & defense companies which will likely benefit from the current scenario. Metals have reached high’s across the board as the flight-to-safety continues.
For the long haulers, this may be a good time to double down on your most confident growth plays, but be prepared to watch your investment sit in the red till the world gets a little optimism back.
Keep an eye on the economy
PPI (Producer inflation): On Tuesday, the Bureau of Labor Statistics will release the producer price index. Investors can see if prices for producers rose which can be a great bellwether for future consumer inflation. Due to the recent geopolitical developments, expect this figure to keep rising.
See here for the full economic calendar
The Curious Investor
No deep-dive this week
Highlights: Volkswagen, FedEx, Dole, Vail Resorts, Williams-Sonoma, Dollar General, Gamestop
What we’re vibing:
Touchscreen by Marshall Davis Jones: When Slam Poet, Marshall Davis Jones, originally performed Touchscreen at the Bowery Poetry Club in NYC in 2011, he had no idea it would become part of English class curriculums around the country. Jones’ performance is magnetizing as he brings to life the delicate balance between our expanding digital lives and our innate human desire for connection in a world filled with touchscreens instead of human touch.
Drive to Survive on Netflix: Last Friday, Netflix dropped season 4 of its F1 docuseries. As expected, it’s outstanding. So good in fact, that some of us may or may not have already binged the entire season (hint: it was Thomas, no drama spoilers for Max please!). Warning, if you’re not into F1, you will be after watching. For those that haven’t watched, try your best to have a productive week!
Think Fast: Name one friend that could be better with their finances and investments! Great, now hit the share button and help them out! :)
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