Markets picked up in September where they left off in August, with rising interest rates wreaking havoc on stocks and bonds alike. For the month, the Core Large Cap Equity category returned -10.1% while the Core Fixed Income category lost 4.2%.
There is no right or wrong way to build an investment portfolio. Rather than spreading money across style boxes simply using backward looking performance data, which is a typical approach, we think there's a more thoughtful strategy that can add attractive diversification benefits and enhance returns over time. Loosely, this strategy is named, "thematic investing."
The latest rate hike announcement by the Fed sent stocks tumbling to the year’s lows. While last week’s market action was brutal, the good news is the markets are set up for a rather significant short squeeze higher.
Although inflation has soared to levels not seen in forty years, expectations for future inflation have stayed remarkably low. This is evident in the bond market, where the spread between five year treasury notes and five year Treasury Inflation Protected Securities (TIPS) is 2.4%, implying average inflation of that level. The forecast over ten years is similar. Inflation over the next year is clearly going to be higher. JPMorgan estimates around 4.5%. So one can infer that the bond market is forecasting inflation starting in one year of less than 2%.
There are always some hindsight-based methods of predicting bear markets and taking full risk-off positioning. Sometimes they work perfectly. While other times they create a ton of capital gains and tax liabilities only to realize the exit level should have been where the cost averaging strategy began.
“The ‘Buffett Indicator’ says the stock market will crash.“ Such was an email I received recently and was worthy of a more detailed discussion. Let me begin with my favorite line from “The Princess Bride.”
So far in 2022, equity markets have been extremely volatile with a bearish trajectory amid economic uncertainty, monetary policy tightening, recession fears, inflation, and geopolitical tensions. Despite all these macro headwinds weighing on equity underperformance across market capitalizations, there remains one word that investors must keep top of mind to recover equities’ losses: “change”.
As the Fed continues to push interest rates higher to combat inflation (today announcing a 0.75% increase), investment professionals from across the Catalyst Funds and Rational Funds network weigh in on what this could mean for investors:
For months, investors have been scaling what feels like an endless wall of worry. Each concern that gets resolved seems to spawn new uncertainties, yet the market has continued its relentless climb higher.
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