Stocks have struggled lately as there is concern that the Federal Reserve will continue raising interest rates to combat inflation. The expectation was that they would raise rates 25 basis points at their next meeting. However, recent data suggests it may be possible that they raise rates 50 basis points in order to fight rising prices.
Markets seem to have already priced in at a 25 basis point increase which is why equity markets have been rallying. Still, even with a 50 basis point increase (as referenced in the article below) inflation does seem to be coming down significantly.
We maintain our belief that inflation will be slightly above average on the long-term and will drop significantly over the course of the next six months. Our investment strategies are based on this perspective as we carefully assess data as it is released.
History suggests after a difficult year in the market (both in equity and fixed income markets,) that the following year may show some relief and bounce back. We are of the belief that will occur this year.
Additionally, if the United States starts moving towards a recession, we believe the Federal Reserve will begin dovish talk and may even cut interest rates later this year. We are maintaining our positioning towards shorter duration fixed income. Also, we continue to focus on stocks that have solid earnings, strong branding, and a predictable and understandable outlook for future business operations. Our analyst team carefully monitors every position, and we will continue to do so.
The article referenced earlier in this update also included comments from Jamie Dimon on inflation. See below.
“JPMorgan Chase CEO Jamie Dimon said Thursday that containing inflation remains a work in progress for the Federal Reserve, while noting the U.S. economy continues to show signs of strength.
“I have all the respect for [Fed Chair Jerome] Powell, but the fact is we lost a little bit of control of inflation,” Dimon said in an interview with CNBC’s Jim Cramer during the “Halftime Report.” It’s the first of a two-part interview with Cramer, with the second installment airing later Thursday on “Mad Money.”
Dimon’s comments came one day after the Fed released the minutes from its Jan. 31-Feb.1 meeting, which showed members remain resolved to fight persistent inflation.
“Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path,” the minutes said.”