Our Perspective on the Market & What You Can Expect From River Wealth Advisors

The first quarter of 2022 saw a significant uptick in volatility, as a directional shift in monetary policy aimed at stemming inflation was exacerbated by the Russian invasion of Ukraine and shutdowns in China.

Entering the new year, the table was set for the Federal Reserve to begin what some saw as an overdue shift to tighter monetary policy. This shift would involve two primary mechanisms: increasing policy rates and reducing the size of the balance sheet, which grew 114.50% to $8.937 trillion since Feb 2020, pre-COVID. 

As one might expect, this policy shift created a bump in market volatility as financial markets recalibrated. With this uncertainty, and the concern about higher than acceptable inflation, markets retreated from all time high levels reached shortly after year end. The selling was particularly sharp in technology stocks, which were confronted by slower than expected growth and higher capital costs. In the bond market, short (2-5 year) rates moved sharply higher in anticipation of Fed rate hikes ahead. Longer rates remained tame, with the bond market signaling a belief, which still largely holds, that the Fed would rein in inflation in a “soft landing” scenario. In this scenario, there is a smooth cooling down of the economy following a period of rapid expansion. By the end of January, financial markets had largely assimilated the new set of uncertainty, and volatility subsided. 

Then came the brutal invasion of Ukraine. In addition to the massive humanitarian crisis, it also created a second wave of uncertainty in financial markets as additional supply lines would need to be cut off to prevent western funding of the Russian invasion. The additional stress in energy and commodity markets (i.e., Russia’s and Ukraine’s primary exports) exacerbated inflation concerns. During February, as we witnessed the bravery and sacrifice of the Ukrainian people, many western governments and corporations cut off or abandoned Russian interests.

By mid-March, financial market volatility eased as Ukrainian forces began to retake lost territory, and international sanctions began to bite. As the month wore on, markets regained the footing that existed before the invasion and the focus shifted back to the Fed and persistent inflation.

Inflation remains a major concern, but expectations are that we may see a peak this month or next. Longer-term interest rates have moved higher in recent weeks, catching up with short-term rate movement forecasts. Nonetheless, we have a domestic economy that has repeatedly proved its resiliency, and corporate management teams that have been nimble in the face of margin pressure. Inflation in a growing economy is less concerning than when it occurs in a contracting economy. At this point, economic contraction is a longer-term concern.

What You Can Expect From River Wealth Advisors

Regardless of the focus of our client portfolios, we seek to provide appropriate diversification among various asset classes and industry sectors with the goal of reducing volatility within portfolios over the longer-term. We remain focused on those areas of the markets that can provide stable and consistent growth over our clients’ investment horizon.

Join us on Thursday, April 14 to hear a more in-depth analysis of the markets and gain insight into what the market indicators are telling us.