Equity Markets Bounce Back
Even though the invasion of Ukraine continued last week, stock markets were positive across the board. We saw global markets (represented by the MSCI All Country World Index) up 5.8% and domestic stocks (represented by the S&P 500 Index) up 6.2%.
Raising Short-Term Interest Rates
As expected, the Federal Reserve concluded their two-day meeting by raising short-term interest rates by 0.25%. This was the first hike since 2018. They also set the expectation for more hikes this year as they work to normalize rates in the face of higher inflation. The expectation is for potentially six more hikes (0.25% each) this year, which would mean they increase them at each of the final six two-day meetings.
Interest Rate Hiking Cycles
I thought the below graphic from Edward Jones provided some good context on historical interest rate hiking cycles. You can see that over time the number of hikes has varied, along with the number of hikes in each cycle.
Rates Around The World
Not only is the U.S. central bank raising interest rates, but others around the world are also doing the same. Last week the Bank of England raised their short-term rate for the third consecutive meeting. With inflation being a global issue, its likely that monetary policy is less accommodative in many parts of the world. The one caveat to that is China, who had already been raising rates and now has the flexibility to reduce rates to help stimulate their economy.
Volatile Oil Prices
Oil prices continue their string of volatility. After reaching an intraday high of about $130 per barrel on 3/8/2022, prices have since fallen about 15% to $110 per barrel. During the middle of last week, the price dropped down to $94 per barrel so the wild swings due to the Russia/Ukraine conflict continue.
GDP Growth Expectations
I think it’s worth noting that, while inflation remains high and the Federal Reserve is raising rates, the U.S. economy doesn’t really need an accommodative policy anymore. We continue to see an extremely strong labor market at 3.8% unemployment, which we believe can continue to drop down to 3.5%. Additionally, consumer spending is strong, household financials are very strong, and the U.S. GDP growth is expected to still be above the long-term trend of 2% here in 2022.
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.