Column: Financial Sense with Jason Glisczynski
By Jason Glisczynski
The first quarter of 2022 has been tough on investors.
All major asset classes of stocks and bonds were lower and only commodity prices were higher. The old-school approach of using bonds as a safe haven has proven to be faulty as bondholders suffered major losses.
Inflation continues to run rather hot as the Federal Reserve has begun raising interest rates while the U.S. Treasury yield curve looks much different with the most significant increases happening in the two-year and three-year maturities. The data suggest that a slowdown in growth and inflation is already underway, something forward-looking advisors have already prepared for.
Retail sales currently look very elevated; however, personal savings rates have reverted back to pre-pandemic levels, suggesting the glutton of cash injected into the economy has been burned up. If you are feeling uncertainty, you are not alone. Inflation amidst oil prices being at 2011-2014 levels should incentivize production as we see the number of operating oil rigs is increasing.
Consumer confidence has taken a sharp drop which typically leads to lower demand and subsequently releases some of the inflation pressure. While you may not FEEL like it, there are very strong offsets to most of the negatives, including inflation.
Low unemployment with substantial job openings is a very positive indicator of the overall economic health of the US. If the economy were to take a significant downturn, into a recession, you would typically see a reduction in job openings and a rise in unemployment.
Historically, during periods of inflation, value stocks outperform growth stocks and the recent data is consistent with this—as your typical high-quality dividend-paying stocks have had a relatively strong performance.
My assumption in late 2021 was that the market would experience a correction of more than 10 percent this year and a 14 percent correction would be a good baseline. I am not a market prognosticator, but rather a student of the data and I know the data will point me in the right general direction most of the time. As we came out of the first quarter we did see a 13 percent drop with a nice rally in the final two weeks that has continued into April.
Investors (and advisors) that ran for the exits instead of maintaining a disciplined approach and staying invested are now caught in a messy situation, missing out on the recent rally while wrestling with the idea that if they get back in now what happens if there is another drop? At the same time, what happens if they wait and there isn’t another drop?
I am keenly aware that we could see a repeat of 2018, 2015, or early 2016 with a few more “corrections” and have deployed positions within client accounts in preparation for this unique market dynamic, and you should do the same.
Jason Glisczynski is the owner and principal advisor for Silvertree, LLC. Investment Advisory Services offered through Brookstone Capital Management (BCM) LLC, a Registered Investment Advisor. Silvertree, LLC, and BCM are separate companies. Visit www.silvertreeplan.com for more information.
