Last week ended with the realization that inflation hadn’t peaked. This week began with markets pricing in a 75 bp rate hike based on a whisper from someone who was in the know. The Fed’s hike puts the U.S. on the steepest tightening path in the G-10, up 1.50% so far this year. To slow inflation and rising prices, the Fed needs to reduce consumption demand. As demand cools, companies take note and start to reduce spending, and then as a second step, curtail employment. This causes the economy to shift into recession which can quickly reduce corporate profits.
Don Schreiber, Jr.
Don Schreiber, Jr.
Mr. Don Schreiber, Jr. is the Founder, Co-Chief Executive Officer, and Co-Portfolio Manager of WBI Investments and has led WBI since founding the firm in 1984. Mr. Schreiber has focused company resources on developing WBI’s unique wealth management strategies that aim to tame the bear and run with the bull. Mr. Schreiber is also the Chief Visionary Officer of CyborgTech, LLC, the company that brought to market Cy – a revolutionary advisor-assisted robo that combines financial planning concepts with custom-tailored portfolios optimized utilizing quantitative analytics and advanced mathematics. Don built Cy’s foundation upon the bricks of transparency and personalization. Don leads the team in continuing the development of what we feel is the next version of the financial revolution.
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With dire warnings from blue chip financial leaders indicating we are heading for an economic and market hurricane, it’s time to sit up and take notice. With record inflation numbers driven by wage-price pressures not seen since the 1970s, we need to analyze that inflation cycle and what happened to markets. Buckle up folks because it is not pretty!
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Every day, we get questions from investors who want to know what’s driving inflation. First, it was Federal Reserve Policy, then government fiscal stimulus, subsequent supply disruptions from Covid and Putin’s war and sanctions.
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The old Wall Street adage of “Sell in May and Go Away” is especially apropos this year with the Fed under the gun to aggressively hike rates to fight inflation. They are hiking rates and turning from the largest buyer of bonds to the largest seller as they collapse their balance sheet of mortgage, corporate, and treasury bonds. When there is more supply than demand in the bond market, it puts more pressure on interest rates. This situation will turn out to be a “double whammy,” causing interest rates to spike, as we have already witnessed, with mortgage rates almost doubling over the past few months.
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You may have noticed that the market cycle has changed along with the Fed’s monetary policy shift to fight inflation. In a bull market, it pays to focus on capturing return. Bull markets are typically built and become wholly dependent on the Fed maintaining an accommodative monetary policy. Growth, momentum, and tech stocks typically do very well during bull markets.
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