May 2022 PDS Planning Market Commentary
Inflation continues to spread throughout the entire economy and puts many, especially lower income citizens, in a difficult position. The most recent inflation data suggested an 8.5% increase compared to a year ago, which marks the highest inflation levels since the 1980’s. The core CPI, which excludes the more volatile gasoline, food and shelter areas, still rose by 6.5% over the past year.
The Federal Reserve is behind the curve and plans to continue raising interest rates over the next 12-18 months in an attempt to cool inflation and get back ahead. Earlier this week, they announced a 0.5% increase to the Fed Funds rate (the largest increase since 2000). Market expectations are for continued increases through the rest of the year. In addition, they are no longer providing stimulus to fuel the fire and will actually start tightening by reducing their balance sheet by $47.5 billion per month through quantitative easing.
These changes are reverberating through markets and interest rates around the world. Shortly after the announcement, domestic indexes jumped by +3% posting their strongest day of the year. However, that was quickly followed by yesterday’s -3% loss within the DOW and -5% loss within the tech-heavy NASDAQ. The Fed’s announcement has also caused 30 year mortgage rates to jump well over 5%, the highest rate since 2009. Auto loans, credit card debt and most other interest rates have all ticked up lately.
However, this not all bad news. Savers that have been holding cash are finally able to earn some interest. One year CD rates and US Treasury rates have jumped to over 2%. These were both well under 1% for the past few years. Commodities have also experienced strong returns lately due to this record high inflation.
Even though it can be difficult in volatile times, the Federal Reserve must push forward with this plan to raise rates and tighten monetary policy in order to slow inflation. We expect this to result in higher than normal volatility like we have recently experienced. Only time will tell if the Fed can get ahead of the inflation curve and bring the economy to “soft landing”, but in the mean time we encourage you to maintain the course with your diversified allocation. Today’s headlines and tomorrow’s reality are seldom the same.
| Asset Index Category |
Category |
Category |
5-Year |
10-Year |
|
3-Months |
1-Year |
Average |
Average |
|
| S&P 500 Index – Large Companies |
-8.5% |
-1.2% |
11.6% |
11.7% |
| S&P 400 Index – Mid-Size Companies |
-5.2% |
-8.2% |
7.6% |
10.0% |
| Russell 2000 Index – Small Companies |
-8.1% |
-17.7% |
5.9% |
9.0% |
| MSCI ACWI – Global (U.S. & Intl. Stocks) |
-8.2% |
-6.3% |
9.2% |
9.3% |
| MSCI EAFE Index – Developed Intl. |
-7.5% |
-8.1% |
4.8% |
5.8% |
| MSCI EM Index – Emerging Markets |
-10.4% |
-18.3% |
4.3% |
2.9% |
| Short-Term Corporate Bonds |
-3.1% |
-4.1% |
1.3% |
1.3% |
| Multi-Sector Bonds |
-7.5% |
-8.5% |
1.2% |
1.6% |
| International Government Bonds |
-11.9% |
-17.5% |
-2.0% |
-2.3% |
| Bloomberg Commodity Index |
20.2% |
43.5% |
10.2% |
0.3% |
| Dow Jones U.S. Real Estate |
-2.2% |
7.2% |
9.1% |
8.9% |
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only. Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice. PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice. If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives. All rights reserved.