Article

April 2022 Perspective


Apr. 4, 2022

Notable News

After months of anticipation, the Federal Reserve raised interest rates by 0.25% percentage points for the first time this year, beginning the process of interest rate normalization for this market cycle. The pressure to decide to raise rates had been building, and continues to build, as inflation rates climb. Core inflation, which excludes food and energy prices, rose 6.4% last month. While not out of the range of Wall Street expectations, it still marked the highest since August 1982. 

Equities

It’s safe to say markets had a volatile first quarter as investors navigated the consequences of Eastern Europe’s geopolitical tensions. While the S&P 500 hit a correction in February—and continued weakening in early March—a relief rally took hold toward the end of the period, providing investors some feelings of relief and optimism. US equites finished March up 3.6%.

Fixed Income

When the Fed raised interest rates, it also indicated that it may accelerate the pace of interest rate hikes for 2022 beyond what they had previously forecasted, sparking fears that a yield curve inversion may occur. A yield curve inversion happens when short-term rates become higher than long-term rates, causing the yield difference turns negative.

This is being closely monitored as such a pattern has historically preceded a recession. It’s our view, it is still too early to confidently call for an imminent recession, as the relationship is not 1:1. The US 10-Year Treasury finished the month at 2.33%.

­Commodities

The oil price spike of recent months alleviated somewhat in the final days when President Biden announced the release of 180 million barrels of oil reserves over the next six months. The intervention is in attempt to combat the rise of energy prices stemming from the ongoing war. Oil prices closed the month at $100.28, still up 5% since the beginning of the month.

Overall, commodity price movements can be strong indicators for macroeconomic growth and financial markets. For example, higher copper prices showcase production of goods, even with strained supply chains and geopolitical influences, and tend to correlate with higher economic growth prospects. On the other hand, rising gold prices can indicate periods of financial market uncertainty.

Our Perspective

Clearly, there’s no shortage of moving parts in markets and the economy right now. In response to the current environment, we are comfortable adjusting client portfolios and have made incremental moves to de-risk in our traditional, multi-asset class strategies. This was not an overnight decision, as our research team has carefully been tracking rising risks and monitoring fundamentals.

Logic Behind Logistics

Ongoing supply chain bottlenecks, originally initiated by the global health crisis, have prompted a closer look at the logistics industry.

Our Perspective

Aware of these conditions, and as bottom-up analysts, our research team have identified individual opportunities in this theme, benefitting from the current state. Read the findings in the Logic Behind Logistics & Supply Chains blog.

State of Growth Investing

The recent volatility in equity markets sparked a discussion about fundamentals, valuations, and our processes in relation to growth stocks.

Our Perspective

Disciplined strategies and processes are essential to navigate the growth vs. value debate. That’s why we’re sharing insights from a recent conversation with analysts from our Technology Group Investment Research team where they answer questions like how are we adjusting to volatility? Hear the answer and more in Growth Investing FAQ with Our Tech Research Group.

Our View
Economic Cycle Economic growth remains unfazed, and the economy is moving later cycle with speed; many countries are now lapping their fiscal spending programs, causing the massive liquidity tailwinds to begin to dissipate
Stock Market US stock market volatility has dramatically picked back up with equities reaching correction territory in February; they remain below all-time highs; valuations are still elevated and there are a variety of rising risks that warrant monitoring
Bond Market Interest rates have risen well off their lows reflecting shifting expectations on inflation, growth, and central bank policy; corporate and municipal bond credit spreads remain historically tight
Foreign Exchange While we believe the dollar may weaken longer-term, in the short-term, it is difficult to make the argument that currencies will swing significantly; the rise in geopolitical tensions has only increased uncertainty or made the environment less clear in the near-or medium-term
Important Issues on the Radar COVID-19: the worst of this economic crisis is behind us, and with multiple waves of the virus, including the Omicron variant, the attention is shifting to learning how to live with the virus; potentially impacting recovery, financial markets and currencies regionally
Ukraine-Russia War: we believe an environment of elevated geopolitical risks over the coming months would entail a general risk-off environment; lending upward support to the dollar, gold, and commodity prices
China’s Economy: China is an outlier regarding policy and has shifted to a gradual loosening stance while most of the developed world begins to tighten; debt and property markets remain major issues; trade tensions continue to impact global trade and supply chains
Inflation: a confluence of massive policy stimulus, tight labor markets, gummed-up supply chains, and rising energy costs are causing inflationary forces to broaden and become more entrenched than previously expected; conflict in Ukraine and lockdowns in China have added to price pressures.


Sources: CNBC Wall Street Journal, Refinitiv.

All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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