The inflationary environment showed more signs of easing this week. This was welcomed by our financial markets, as they responded in a positive manner. The consumer price index (CPI) rose just 0.1% in March and 5% from a year ago. Both metrics were below the prevailing estimates. Categories like used cars and energy fell slightly while food prices remained flat. Shelter costs saw the smallest gain, 0.6% since November, but still higher year over year. The June 2022 high water mark for inflation is firmly in the rear-view mirror as the Fed policy makers look to pivot in the weeks ahead. Even with shelter costs slightly higher (a closely watched piece of the total CPI number), expectations for a cooling environment in housing and rents seem more likely as we move into the summer months. All eyes are now squarely focused on what the Federal Reserve will do at their next meeting in a few weeks. Growth is slowing as evidenced by the data coming out but the desire by the Fed to raise rates one more time by 0.25% at their next meeting seems more than likely (The futures markets have it pegged at a 65% chance of the increasing occurring). Of course, many pundits out there are already inferring that the Fed is pushing us too far and another rate increase puts the nail in the recession coffin.
We had the opportunity to hear from many economists over the week, including famed Omaha sage, Warren Buffett. A lot of the attention is now focused on what might occur in the month ahead. Even though the Fed looks poised to stop the interest rate increases (likely after their early May meeting), it is important to gauge how our markets are expected to react once a true pause is taken. Professor Jeremy Siegel, a well know Wharton School of Business economist, always provides good insight and talking points. I had the opportunity to see two different presentations he gave this week which are always enlightening. Now in fairness, Professor Siegel is a “stock” guy through and through, but he did mention a line I wrote down so I would not forget.
“Stocks are the most volatile asset class in the near-term but the most stable in the long run.”
There is a lot going on here, but the simple fact remains that stocks, over the long run, have far outperformed other asset classes. The real inflation adjusted return from 1801 through 2022 is a solid +6.7% annualized. That’s 200+ years of history to rely on! For many of you that have met us in our offices, you know we keep a similar chart on our wall. Sometimes it’s simply about perspective.
History can be a guide at times like this and we have begun doing some work around that theme which we will share in the weeks ahead. While we certainly are not in the prediction business, it is important to make sure we are invested properly and in accordance with your personal goals. As the likelyhood of us entering a recession increases, we must maintain and keep our perspective. The word recession alone sounds scary, but when taken into context, we can rationalize and plan accordingly. Spending less and making better financial decisions are a part of that process. Timing the market rarely works efficiently, especially when we are planning for the years later in life. What is important, however, is keeping us informed of any big changes occurring in your personal world (health, retirement, life events, etc.). We always strive to do our best in communicating with each and every one of you on a regular basis, but always welcome your calls and questions.
Enjoy your weekend!
https://www.cnbc.com/2023/04/07/jobs-report-march-2023.html (Job Growth in March)
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.