Bull|Bear Insights

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!

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. 

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. 

After briefly touching record highs at the start of the year, markets gave investors a truly wild ride through the first quarter of 2022. Most indices chalked up their first quarterly loss in two years. Any positive sentiment that was carried into the new year got decimated by more sky-high inflation readings, clear indications that monetary policy must tighten faster than expected, and lingering concerns over additional COVID-19 variant surges. As if that wasn’t enough, Russia’s invasion of Ukraine brought a further surge in commodity prices along with huge spikes in market volatility as news and pictures of the horrors of a brutal war sent shockwaves around the globe.