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THERE WAS MUCH hoopla last week about high inflation, surging interest rates and geopolitical turmoil. Sure, these are important macro conditions. Still, stocks took things in stride. If you only pay attention to once-highflying growth companies, especially tech stocks, the market appears dire. Broaden your perspective, though, and things haven’t been all that terrible of late.
Yes, the S&P 500 lost 1.8% last week. Small-caps, however, were up 1.5%. Foreign shares were about unchanged. The U.S. bond market, despite one of its worst days of the past decade on Thursday, was down just 0.4%.
Traders’ heads are still spinning after a wild earnings season. From company-specific volatility to U.S. economic headlines to the Russia-Ukraine crisis, investors might be on edge. But there are some encouraging signs.
Most stocks remain above their Jan. 27 lows. Diversified investors—who likely underperformed last year—have benefited from international exposure in 2022. Vanguard FTSE Emerging Markets ETF (symbol: VWO) is positive year-to-date, while foreign developed market stocks have beaten the S&P 500 by 3.5 percentage points in 2022.
Another green shoot: Small-cap stocks have turned up versus large-caps. The iShares Russell 2000 ETF (IWM) has outpaced the S&P 500 by almost four percentage points since Feb. 2. While a short timeframe, that could be a sign that not everyone is risk-averse right now.
Many small speculative stocks have endured a tough year. While the iShares Russell 2000 ETF has lately held up well, it’s down more than 10% over the trailing 52 weeks. Given the extended duration and magnitude of the decline among small company stocks, now might be a decent time to buy.
It’s humbling how quickly financial markets can turn from optimism to fear. There’s no shortage of risks to worry about right now. But that often means opportunity for those investors who focus on the long run.
Too much money chasing too few items, 40 million Americans quit working for numerous reasons since September 2021 me one of them, global supply chain issues due to the pandemic, $30 trillion in debt spending… do I need to continue about the causes of inflation in the U.S. Thank you Senator Manchin from West Virginia.. finally a Senator with some common sense. If I ran my financial life like the Federal Government does I’d be broke and in prison… its shameful..
The focus of this piece seems to be on traders? I do a little tactical balancing, but mostly I’m just letting the markets do their thing, and I’ll take what they give me.
All these worries are just one more brick in the wall of worry that the markets climb, and 3 years from now I’d be surprised if we remember why we were concerned.
What I don’t like about columns like this one is that it focuses on short term monitoring of stock markets. And, by pointing out the pieces that are doing a little better, at this instant, than other pieces, it might motivate some folks to change their investment mix. As investors, rather than speculators, we are all riding the world economy. We should each have an asset allocation strategy that matches our risk tolerance. To succeed we have to have the courage to ride out shorter term fluctuations and market noise, having faith that over time we will come out ahead.
I’m thinking what we are seeing now are mere blips. What may be on the horizon is scary. Think of the climate we are creating. Politicians ranting about corporate greed and “CEO” pay as if they cause inflation or take from workers pay.
Then we have the promises for more, free college, forgive loans, extended time off with pay, child care, etc.
We have spending like MMT is the policy of the day, but no discussion of how to pay for it except the pandering tax the wealthy and corporations. The US has one of the highest corporate tax rates.
Inflation is up and why not, even MMT says that may be a result of spending what you create. What it says follows of course is higher taxes.
Demands for higher wages adds to the cycle promoting inflation.
Seems to me all this is not going to end well for stocks or people. Especially when so many Americans seem to simply accept the narrative they are victims, the system is rigged, they aren’t getting their fair share and all they deserve can be “free.” – to them‼️
Wages have been stagnant for decades. Only recently have they begun to rise. Corporate profits are currently the highest in 70 years. Let’s include ALL reasons for the current inflation.
Corporate profits are not the cause of inflation
They are certainly one part of it. To single out wage hikes and ignore record corporate profits is disingenuous at best. It’s all part of the mix.
If you are talking CPI, they are not. They may be a result of inflation but they do not figure in the calculation:
I assume the price of a new automobile reflects in part the profits that the auto industry made from the sales of those cars… so I’m not sure how the inflation rate excludes corporate profits?
At the same time, there are gaps in the idea that corporations have the pricing power to gouge customers. Sometimes yes, sometimes no.
I think the question of corporate greed is a valid one, but that both sides of the discussion overstate their case. Gonna leave it at that, not really an econ/socioeconomic board here.
Inflation is primarily (Milton Friedman would say the only) driven by government which is the only entity that can create money and thus the ability to spend and create demand and if that demand can’t be met by supply it’s worse. I think 2021 pretty much substantiated that. Business can raise prices all it wants, unless people have the ability and desire to buy it won’t work just like not paying workers what they demand doesn’t work forever which is also being demonstrated.
The CPI is a measure of inflation and not an explanation of the factors that cause inflation.
I think you could pick any time in recent history and declare that the future is dark. Yet standards of living today are higher than ever and the general population lives in a way that surpasses that of royalty and millionaires not so long ago. I would avoid such pessimism.
Well said. It’s good to be aware that the market can lose 50% at just about any time, and has lost 80-90% before, but also that the odds of this are not that great. General pessimism has historically been a mistake.
It’s interesting that most people in this country currently say they are doing well financially, but that the country isn’t. There seems to be a significant gap between facts and perception.
That is perfectly true, but that doesn’t mean that something very bad can’t happen. The odds are low, but nobody knows what will happen.
Try and convince the purveyors of one “crisis” after another and the large percentage of Americans who agree with them. I’ve only been around for 78 years, but I think our time is a bit different mainly because of the sharp political divide that has been created. There seems no middle ground on anything.