Thank you to those who joined our webinar with Liz Ann Sonders on 4/1/22! Below is a summary of our discussion and key takeaways regarding the war in Ukraine, Inflation, Corporate Earnings, the Labor Market, and suggestions for long-term investment success.
About our speaker: Liz Ann Sonders
Named one of the “25 Most Powerful Women in Finance” by American Banker and one of SmartMoney’s “Power 30” most influential people on Wall Street, Liz Ann provides insightful views and analysis of the market today including risks, opportunities, and practical suggestions for achieving long-term investment success. Click here to read Liz Ann Sonders’ impressive bio and follow her on Twitter or Schwab.com for updated content and ideas.
KEY TAKEAWAYS:
Liz Ann’s View on the War in Ukraine
The immediate impact of the war on the U.S. and International economies has been felt via rising energy prices. U.S. stock market volatility has risen over the past couple of weeks, largely due to the instability that comes with warfare. Sanctions placed on Russian banking and payment systems have further led to significant volatility in currency markets.Volatility within the Energy markets is likely to persist until a peace accord is reached.
Inflation
Overall headline inflation, inclusive of energy and food prices, is at the forefront of everyone’s mind. Though we won’t see inflation ease rapidly, we are likely going to see a gradual reduction of core inflation and an improving rate of change. We are beginning to see growing weakness on the goods consumption side of the economy because of some pent down demand. In the face of inflation, however, the energy sector and commodities have potential to fare well.
From a technical perspective, it is important for investors to use the volatility and inflation to their advantage when adding energy to their investment mix. A lot of stocks within the Energy space appear overvalued, but they are still largely under-owned, an important distinction.
Corporate Earnings and Valuations
Earnings across many segments of the economy have been relatively strong and resilient despite the myriad of challenges faced in the past few years. Not surprisingly we are beginning to see less “good” numbers, though this was to be expected after the results from last year were tremendous, in part due to easing Covid restrictions and the government stimulus. We will continue to see a decelerated pace of earnings, though this does not mean there won’t be any earnings growth (Q4 2021 produced 30% earnings growth relative to an abysmal Q4 2020).
A trend we are seeing is that fewer companies are beating expectations. With labor costs going up, it is challenging for many companies to maintain the same record profit margins they saw last year.
Wages
When looking at the labor market and larger wages, it is important to put it in the context of inflation. The rate of wage growth may be higher than normal but is below the rate of inflation, so “real” wage growth is actually in negative territory. While employee compensation across the board may be higher, once you subtract inflation, it is not as exciting as it may seem.
Investing in Today’s Market
High volatility is likely to continue, especially in the face of war. We are seeing a transition from extremely loose fiscal policy to tighter policy without fiscal stimulus and concerns about a general economic slowdown.
With this in mind, it is important to focus on high-quality investments and utilize the ongoing price instability to your advantage. Focus on companies with positive earnings, low debt, and remain disciplined around rebalancing and diversification.
Remember, what we do along the way is what drives our success, not focusing on what might happen in the future.
Final Thoughts
We are so grateful to Liz Ann for sharing her vast knowledge, and are looking forward to hosting our next webinar!
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.