You may have noticed that the market cycle has changed along with the Fed’s monetary policy shift to fight inflation. With inflation soaring, it is clear that the Fed is way behind the curve on raising interest rates. They will likely stomp on the proverbial breaks in an attempt to rapidly slow the overheated economy and inflation. When the Fed moves into this type of posture, they have caused a recession about three-quarters of the time. And recessions are typically correlated with bear markets.
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.