By: Jeff Anderson
|Close||Weekly return||YTD return|
|US Treasury 10yr Yield||2.893%||0.6%||132.6%|
Source: Wall St. Journal
Imagine you hopped into a time machine and landed in 2015. Now, imagine someone telling you that the inflation rate in August of 2022 was 8.5%! And then, someone told you the market went “up” after the news. IF you could comprehend what you just heard you certainly wouldn’t believe it. How can that be? I’ve written ad nauseum about inflation. I’m sure you’re tired of hearing the word. Heck, I’m tired of writing about it. Regardless, the point is to hammer home the fact that equity markets are always forward looking. What was it last month? Is it getting worse or better? Oh, it’s getting better? Great! Now, how the market reacted is partly a function of the trend in inflation but also, just as important, a function of where the market was leading up to Wednesday’s inflation data. It wasn’t long ago……call it late 2021, when the drumbeat of inflation was a dull roar. All hell broke loose in early 2022 when the Federal Reserve realized that inflation wasn’t as transitory as it had once thought. Equity and Fixed Income markets don’t like negative surprises. Capital markets are always uncertain, but when shocks to the system occur, the level of uncertainty (and emotional stress) intensifies, leaving investors uneasy about the future because they are projecting today’s problems with some sort of future permanency. Pessimism was in full bloom, and to some extent, hasn’t completely abated. When markets reach 2009-type pessimistic levels, markets are almost sure to turn around. To be fair, there are things to worry about. But, if you can adjust your lens to focus on the long-term, you can see a scenario where this just becomes another page in the history books. One to reflect on, and hopefully learn from.
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