Interest Rates & Inflation

Over the past many months, as we are all aware, inflation has continued to rise. Accordingly, central banks have raised interest rates multiple times and will likely continue to do so as the year progresses. As a result of the interest rate increases and persistent inflation, the prospect of a recession has increased significantly. Contrary to their normal ‘playbook’, central bankers will likely keep raising short-term interest rates while the economy is slowing. It’s anyone’s guess as to how long inflation remains elevated. The reality is that many of the factors impacting inflation are beyond the central bankers’ control. Commodity prices, which have increased dramatically from the start of the year, have recently begun to fall. For example, the price of natural gas started the year at $3.50, rocketed to $9.35 and is currently around $6.00. The recent declines in commodity prices should help alleviate some of the inflation concerns.

Stocks and Crypto

The S&P500, the broadest measure of US stocks, fell 20% in the first half of 2022. While certain sectors (ie. energy) have fared relatively well, it has been a challenging six months for most markets. The technology sector has been hit the hardest, with many companies down 30%+. While we do not own crypto in our Managed strategy, nor do we plan to, it has been interesting to follow the events in the crypto world as of late. In November 2021, the total market value of all crypto assets peaked at around $3 Trillion. Currently, the total market value is around $1 Trillion. With the dramatic fall, it is no surprise that there have been multiple news headlines regarding crypto firms going bankrupt.

The Wealth Effect

With stocks, crypto and real estate prices falling, people now feel less wealthy. Unfortunately, this will have a negative impact on the economy as people spend less. Thankfully, employment remains strong and many families still have money saved from throughout the pandemic.

Our Action Plan

We are currently in the midst of an economic slowdown. Our focus is to protect capital rather than to try and grow it rapidly. Things are happening quickly and when the facts change, we plan to adapt to the new conditions.

Wishing everyone a great summer.

Pearlstein Wealth