Two Sides to Every Coin

By: Ferguson-Johnson Wealth Management | April 1, 2022

Frankly, it has been an unpleasant start to 2022 in financial markets. Concerns over inflation, a hike in  interest rates and, of all things, a land war in Europe has weighed on both stock and bond markets alike  to start the year.

Fortunately, March saw some rebounding from the lows that were hit at the end of  February. Whether this recovery will be sustained through the second quarter is unknown. 

Once again, I want to levy a usual reminder that being fearful during downturns can lead to ruin. Believing that somehow this time will be different than every downturn that has come before is likely a  path to an undesirable portfolio outcome.  

One silver lining is that value stocks are just below breakeven while growth is down double-digits – a sharp reversal of the trend that has prevailed over the past few years.

YTD Inflation Returns Graph

Source: FactSet, data as of 3/31/2022 

Inflation… Again… Still… 

I know I beat this drum a lot, but it constantly bears reminding. Please try to avoid letting news outlets  guide your attitudes on finances, markets, and the economy.

Is there a legitimate reason to have  concerns about things like inflation and interest rates? Absolutely. Should the magnitude of that concern be at a level that an hour of watching nighttime news would suggest? Not even close. 

It doesn’t matter on which side of the political aisle you fall. All flavors of news programs are, by design,  constructed to tap into your fears and leave you feeling uneasy. Humans are equipped with a behavioral response to danger.

We want to be informed of the things that threaten us so that we can take the actions required for self-preservation. As a result, we tune back in, day in and day out, to find out what  there is to be afraid of.

If there isn’t anything to worry about, we’d stop watching. It’s not in the interest  of any news network to give a signal of calm or safety, irrespective of veracity. They would lose viewers,  which would lead to losing ad revenue. Instead, we’re fed another reason why inflation signals the end  of days and who we should be mad at about it.  

The reality is that inflation is still high. FRED data suggests that CPI is now rising at about 8% year-over year. 

High Inflation Rising Consumer Price index

Source: US Bureau of Labor Statistics

Though, I’m sure that number isn’t a surprise. Anecdotally, non-finance people in my life have a more  accurate quote on inflation at any given moment than I do because the news tells them what it is every  day. 

What the news often fails to point out is the other side of the economic coin. All of the vitals for the American economy are remarkably strong.

Unemployment is near historic lows at 3.8%1. Employers continue to increase wages. High (> $30/hr) and middle ($20-30/hr) income earners are seeing wage increases roughly in line with current inflation rates and low (< $20/hr) earners have seen increases of  nearly 15%, on average2.

Retails sales (which can serve as a barometer for household economic health)  increased 15.9% over the last year3. Revised 2021 GDP reported at 6.9%4. Household net worth rose  14.4%5.  

Despite inflation, everything suggests that the average American household is arguably in better shape  than it was a year ago. 

Other Tax & Economic Updates 

After the unexpected collapse of the Build Back Better bill in congress in December, legislators have  made some movement on new legislation that affects the treatment of a few retirement provisions  which may be applicable to our clients. Most notably, increasing the onset age of Required Minimum Distributions from age 72 to 75 along with enhancements to 401(k) contribution limits and rules. 

The bill has already cleared the house with strong bi-partisan support. We’ll see if it continues its  momentum in the Senate or if significant carve outs stymie things once again. We will obviously stay  abreast of the developments and interpret how any legislative changes may impact our financial planning recommendations. 

As always, we look forward to our next conversation with you. 

1 Source: US Bureau of Labor Statistics, data as of February 28, 2022. 

2 Source: US Bureau of Labor Statistics, data as of February 28, 2022. 

3 Source: US Census Bureau, data as of February 28, 2022. 

4 Source: US Bureau of Economic Analysis, data as of December 31, 2021. 

5 Source: US Board of Governors of the Federal Reserve System, data as of December 31, 2021.

Past performance is no guarantee of future results.

This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Investment advisory services offered through Ferguson-Johnson Wealth Management, a registered investment adviser.

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