September 19, 2022 •Nathan Willis
Key Events: Inflation pressures dominated
On Tuesday, then again on Wednesday, the markets were greeted with news of higher-than-expected inflation. These two pieces of data decreased the market’s optimism that the Fed might slow down its rate hike campaign. In fact, the odds of an even larger rate hike (1% instead of .75%) increased immediately following Tuesday’s inflation data. By the end of the day Wednesday that probability was 24%, up from zero a week prior.[1]
A potential strike of railroad freight workers added to worries about inflation, and Thursday the Philadelphia Federal Reserve released its economic outlook survey, which showed expectations for continued economic slowdown.
Market Review: Inflation and growth fears hurt markets - again.
The market sold off significantly on Tuesday and continued lower: the S&P 500 finished the week down 4.7%. International stocks lost much less, although they are still worse for the year.
Inflation data caused bond yields to rise – and prices to fall – across the board. Corporate bonds lost more than government bonds, reflecting heightened recession fears which would hurt companies.
Outlook: Volatility is likely to continue until greater clarity appears regarding inflation, the Fed and economic growth.
Our view is that we are in a bottoming process and, assuming a mild recession, the market should find a bottom and begin to recover. Valuations in the bond and stock markets are compelling.
Avoiding mistakes is the key to success in investing. Disengaging from the market when it is down is at the top of the list of mistakes to avoid – investors who left the market missed one of the top ten months in July. Remember to remain focused on your long-term plan and consult with your advisor to discuss how to best meet your goals.
Navigator Outlook: September 2022
[1]Source: CME Group
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