2022 Economic Update

In December, we left a relatively great economic 2021 behind (minus Covid-19’s challenges), to face an interesting 2022.  What have we seen in 2022 so far?  Definitely not as sunny as 2021, but not as bad as it could be given the circumstances in the world.  As we forecasted in late 2021, we expected to have a cooling period in the U.S economy and stock market sometime in 2022 or 2023.  The odds were there for a down year, given the three-year run of double-digit returns in the U.S. stock market 2019-2021.

In January, the U.S. stock markets started showing increased volatility and declines.  This lasted through February, several times falling into the category of “market correction” (more than a 10% decline in a given index).  In the third week of February, geopolitical concerns rose as Russia invaded Ukraine after years of tensions in the region.  This event sent the global economy into a state of uncertainty, and we have continued to see declines both domestically and internationally.

US Stock/Bond Market Performance for Year to Date (3/18/22)1
S&P 500 -6.95%
Dow Jones Industrial Average -5.0%
NASDAQ -12.25%
MSCI EAFE (Large International Stocks) -7.6%
MSCI EAFE EM (Emerging Markets Stocks) -5.77%
Barclays US Aggregate Bond -4.59%

 

In addition to this uncertainty, other economic factors in the U.S. have contributed to a decline in consumer confidence.  Inflation, which rose to 7% in 2021, has continued that track into 2022.  Headline inflation as of the end of February was 7.5% in the U.S, the fastest increase since the 1980s.  The Federal Reserve began their response to combat inflation at their March meeting by raising the Federal Funds Rate by 0.25%.  They also indicated that we should expect rate increases possibly six more times this year.  The target Federal Funds Rate at the end of 2022 is expected to be near 2.0%, while it has been 0.25% during the past few years.  The last rate increase was in 2018.

A second impact on consumer confidence, a significant increase in gas prices, hit the U.S. when Russia invaded Ukraine.  There is some debate about what is actually causing the increase, given that we only get 1% of our fuel from Russia.  However, globally, the impact is much larger and we are a global economy.  In 2021, economic forecasts already pointed to an increase in the price of oil.  In September, oil prices hit a three-year high at $80 per barrel.  Today, we are seeing $113 per barrel, which has increased the price of gas in the U.S to average of $4.19 per gallon.

The bright side for us here in the U.S. is that we have had significant declines in the number of Covid-19 cases, less severe cases, and fewer hospitalizations and deaths.  In February, the seven-day average for new daily cases had declined to levels lower than November 2021.  This means more people are traveling again, socializing, and spending money on entertainment and services.  Proof of this is seen in the manufacturing sector of the U.S. economy remaining in expansion territory by the end of February.  The unemployment rate is now near the low of 4.0% that occurred in January 2020, before the pandemic hit.  Core retail sales rose for the fifth time in six months in February as well.  In the housing market, existing home sales and new building permits continue to rise.

As you can see, we have a mixed bag with good news about the U.S. economy and some uncertainty with the global economy.  As always, we will continue to monitor the economic indicators, market trends, and expectations, and keep you informed.  If you have any questions, please let us know.

 

 

Jennifer L. Adams is a CERTIFIED FINANCIAL PLANNER™ practitioner, Certified Divorce Financial Analyst (CDFA) and financial advisor at Starks Financial Group (440 Montford Ave. Asheville, NC 28801 // 828-285-8777).  Starks Financial Group is not a registered broker/deal, and is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc.  Member FINRA/SIPC. Investment Advisory services offered through Raymond James Financial Services Advisors, Inc. This article expresses the opinions of Jennifer L. Adams and not necessarily those of RJFS or Raymond James.  Certified Financial Planner Board of Standards Inc. owns the certification marks CERTIFIED FINANCIAL PLANNER ™ and CFP® in the U.S.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.   The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  Past performance may not be indicative of future results.  Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Investing involves risk and investors may incur a profit or a loss.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.  The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.  The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.  The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations.  The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks.  The Barclays Capital Aggregate Bond Index, which used to be called the “Lehman Aggregate Bond Index,” is a broad base index, maintained by Barclays Capital, which took over the index business of the now defunct Lehman Brothers, and is often used to represent investment grade bonds being traded in United States.

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