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Thoughts on The Market

September 22, 2022

Poor performance in both the stock and bond markets has led to a perfect storm for portfolios this year. Negative returns continue to be driven by the same thing you're probably tired of hearing about: Inflation.

We continue to believe inflation has peaked and is on its way down. It already has in many areas:

  • Import Price Index: Food, Feeds, and Beverages
  • Internet Truckstop - Van Rate New
  • WCI Shanghai to Los Angeles Container Freight Benchmark Rate per 40 Foot Box
  • Daily National Average Gasoline Prices Regular Unleaded
  • Manheim US Used Vehicle Value Index
  • US Zillow Rent Index All Homes
  • Employment Cost Index

From wages, to freight and trucking costs, to used cars, rent, and gasoline - We've seen a peak in several key input costs.

Business expectations of future inflation has topped out as well. The ISM Manufacturing Report on Business Prices tracks sentiment about future inflation for business production, new orders, inventory, etc. This decline in sentiment is important, since outsized inflation expectations can in itself lead to higher prices and more inflation. 

But we haven't seen these costs filter down to consumer prices, yet. That process has been slow, but it's coming. When that takes place the Consumer Price Index (CPI), the key inflation measure you hear about on CNBC, will decline.

If inflation eases, less pressure will remain on the Federal Reserve to aggressively raise interest rates and deploy other tools. That'll likely be a win for the stock and bond markets. Listen to additional thoughts on inflation and rates below. And as always, let us know if you have any questions.