As we head into 2022, it appears that the US Federal Reserve Board (FED) finds itself behind the curve. This means the FED appears to be forced to reduce monetary stimulus and raise interest rates faster than they expected just a few months ago.
Through 2021 the FED held the viewpoint that the inflation showing up in the economy was transitory in nature. At the time I also felt that inflation was temporary, lasting around 6-9 months. That is proving not to be the case. We are approaching one year since inflation has started to seriously surface in global economies. I don’t see the current inflation concerns being like the 1970’s and early 80’s where inflation became embedded in the economy and took a lot of pain in terms of higher interest rates to correct the problem. Currently a lot of the inflation showing up can be traced to supply chain issues and excess monetary stimulus. As the FED reduces stimulus and the supply chain constraints ease, so should inflation.
The old investment adage, “Don’t fight the FED”, would currently tell an investor to be cautious because less stimulus and higher interest rates tend to be a negative for stock markets. For the last couple of years, the FED and other central banks have been an investor’s friend with lots of monetary stimulus and very low interest rates. In a rising interest rate environment, an investment guideline I use is, rate increases do not become a real hindrance to stock markets until we see at least 3 quarter point rate increases. Applying this guideline based on recent economic and financial outlooks from the FED, I expect their upcoming actions to have a limited affect on stock markets for all or most of 2022.
In summary, I expect global stock markets to perform reasonably well even though the FED and other central bankers are beginning to tighten the money supply and slowly raise interest rates. I expect to have clients fully invested over the next 6 months with a conservative equity bias.
If you have any questions or comments, please feel free to contact me.
Best regards,
Bill Acthtymichuk
DISCLAIMER
This information has been prepared by Bill Achtymichuk who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this email comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.