By M. Blake Fortune, II
To date, 2022 has sent investors on a rollercoaster ride. Equity markets were deep in the red for the month of January. Inflation, monetary policy and geopolitical tension drove the risk off sentiment. Below, we delve deeper into some of the prevailing January themes.
It should come as no surprise that the first major story of January relates to the Federal Reserve and the Federal Open Market Committee. Jerome Powell and Co. indicated that they are “late to the ballgame” when it comes to fighting inflation. As a result, the federal funds rate is expected to rise in the coming months. The big question here is, “How quickly?”. Possible effects on the capital markets? Sustained sell off in high growth names, bonds with long durations losing value, mortgage/credit card rates increased.
Secondly, Russia and Ukraine. Russia has expressed concerns over NATO’s “eastward expansion” and has demanded that Ukraine not become a member of NATO. The Russian military has deployed hundreds of thousands of troops to the Russian/Ukraine border. Possible effects on the capital markets? Energy crisis in Europe, which remains dependent on Russia, increased consumer energy costs.
Thirdly, supply chain issues. Supply chains remain cracked and are the main culprit for rising inflation. Worker shortages at ports combined with driver shortages have wreaked havoc on interstate deliveries. Ocean and air freight remain costly, and those high costs are passed to consumers. Possible effects on the capital markets? Sustained cost increases that could help buffer corporate earnings but ultimately hurt consumers.
Lastly, corporate earnings. With all of the noise in financial media, the fact that Q4 earnings season started in earnest in early January went by the wayside. Q4 earnings, for the most part, have been strong. Many beaten down tech names (some of which were down in the 25% range) posted big top line beats. Some big corporations have been hiking their dividend payments while others have considered stock buy backs or stock splits. Possible effects on the capital markets? Buyers step in to scoop up beaten down names.
We remain optimistic in our view of the domestic markets. It is during these volatile times that a disciplined investment process takes the day.
Happy Groundhog Day all!
To contact the author of this story:
Blake Fortune at blake@hamiltoncapllc.com
