As we head into the fall, the global markets continue to experience ongoing volatility. As geopolitical tensions and inflationary pressures persist, recent headlines suggest that a sustained economic recession may be inevitable.
While near-term economic indicators appear grim, the long-term outlook remains positive despite market challenges.
Main Concerns in the U.S. and Global Economy
- Ripple effects from Russia’s War in Ukraine
- High energy prices
- Persistent inflation
- Aggressive Federal Reserve policy
- Higher interest rates
- Higher mortgage rates and soft refi activity
- Weak investor sentiment
- Major equity and bond indices at or near multi-year lows
Favorable Economic Factors
- Lower oil and commodity prices
- Lower rents and home prices
- Decelerating inflation
- Robust job market
- Strong consumer sentiment
- Resilient corporate earnings and balance sheets
- Supply-chain normalization
- Discounted asset prices today could lead to attractive future returns
Central Banks and Interest Rates
With so many factors pressuring the global economy, central banks are weighing a difficult trade off. Live with high inflation or dampen economic growth? Globally, central banks are raising interest rates in an effort to moderate inflationary pressures.
What To Expect
- Continued aggressive monetary policy
- As expected, the Fed raised the Fed Funds Rate by 75 basis points to 3% to 3.25% (September 2022).
- Persistent inflation
- Positive, but subdued economic growth
- Higher money-market and fixed income (bond) yields
- Volatile equity markets
The Real Estate Market
Mortgage rates have spiked significantly, resulting in higher borrowing costs. Over time, the difference between a 30-YR mortgage at 3.00% vs 6.00% translates to six figures (or more) in additional payments over time.
Mortgage applications for both new home purchases and refinancings have declined this year, cooling down the red-hot housing market.
Summary
In the short-run, inflation is high, investor anxiety remains high, and the near-term economic outlook is murky and unpredictable. Recent actions by the Fed have demonstrated their willingness to weaken the economy in the short-run to reduce long-term inflation.
In the face of short-term uncertainty, we recommend investing with a long-term view in mind, maintaining adequate cash reserves, and rebalancing your portfolio according to your specific goals and investment strategy.
https://www.youtube.com/watch?v=IzjfFhhsWt0&t=18s
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.