Global Markets Fall Again on Persistent Inflation and Bearish Sentiment

Global Markets Fall Again on Bearish Sentiment

U.S. markets fell for the sixth week in a row as sentiment remains low. We saw global markets (represented by the MSCI All Country World Index) down -2.2% and domestic stocks (represented by the S&P 500 Index) down -2.4%.

Inflation Report

The focus of the week was the release of the April inflation report from the U.S. Bureau of Labor Statistics. On a year-over-year basis, headline inflation came in at 8.3%, slightly below March’s figure of 8.5%. Core inflation, which removes energy and food, came in at 6.2%. On one hand, it appears that inflation may have peaked in March. On the other, it remains too elevated and reinforces the fact that the Federal Reserve will need to continue raising interest rates in an effort to bring it down to more reasonable levels. When looking under the hood, inflation for goods seems to have peaked and is on a downward trend, however, services have begun to increase in cost.

Consumer Sentiment Index

In another report last week, the University of Michigan Consumer Sentiment Index revealed that views on the economy continue to fall. In our opinion, this topic hasn’t been discussed enough, where consumers (and in turn investors) are feeling the anxiety of higher prices. The latest report, released last week, showed that sentiment hadn’t been this low since 2011.

A Soft Landing

You’re going to hear the term “soft landing” a lot over the next few months. What this refers to is the objective of the Fed right now, which is to get inflation down while keeping unemployment low and not impacting economic growth too much. It’s a very tough task and unrealistic to expect no economic impact from tightening policy. With that said, their starting place of low unemployment, strong corporate earnings, and a previous year GDP growth above 5% gives them some cushion to work.

Jerome Powell

The U.S. Senate approved Jerome Powell for a second term as Fed Chair last week. He was originally appointed by President Trump in 2018 and selected to continue his role by the current administration.

Investing Uncertainty

We’ve reached what I believe is the hardest part of investing. Investors are faced with a ton of uncertainty (COVID, geopolitical issues, inflation, rising rates), low sentiment, and consecutive weeks of downward market volatility. It is truly hard to remain calm, unemotional and focused on the long-term. With that said, this is the time when investors must remain most disciplined. Volatility is very normal in equity markets, and investors who control their behavior during the ups and downs are the ones who put themselves in a better position to achieve their long-term goals.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.

S&P 500: The Standard & Poor’s 500 Composite Stock Price Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy. Stocks in the Index are chosen for market size, liquidity, and industry group representation.

Russell 2000: The Russell 2000® Index is a capitalization-weighted index designed to measure the performance of the 2,000 smallest publicly traded U.S. companies based on in market capitalization.  The Index is a subset of the larger Russell 3000® Index.

MSCI All Country World Index: The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 24 Emerging Markets

(EM) countries. With 2,937 constituents, the index covers approximately 85% of the global investable equity opportunity set.

GDP: Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.

The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice.  Such views do not take into account the individual financial circumstances or objectives of any investor that receives them.

All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.

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