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Last week brought much less volatility than we’ve seen, recently, although all three of the major indexes ended modestly lower. Thursday closed the door on the first half of 2022, the worst start to a year in decades. The door remains open regarding many unanswered questions relating to inflation and economic outlook, which could lead to further temperamental trading as answers are uncovered.
Competing narratives continue to create shifting sands for investors and analysts, alike, due to the appearance of contradictions. Analysts are closely watching both economic growth and inflation. When indicators show a slowing economy, it bodes well for curbing inflation. That said, successfully curbing inflation could lead to a significantly negative economic result in the near term. This seesaw of sentiment makes it hard to anticipate how investors will react to any given report.
Both of these factors, of course, play a role in the overall economic health of the nation. The metric most often used as a “checkup” on our health, as a whole, is Gross Domestic Product. Quarter One of 2022 saw a decline of 1.6%, a larger contraction than initially estimated. Estimates for the second quarter project another negative quarter—if this occurs, it will mean we have truly been in a recession.
Many experts are using the phase ‘technical recession’ to describe this potential. This is because, despite meeting the definition, we continue to see low unemployment and strong consumer spending. The Federal Reserve has continuously cited strong labor markets in their reasoning for the economy’s ability to handle their rate hikes. Investors will certainly track weekly jobless claims to watch for any changes.
Positioning investments during times of conflicting information can feel like Psalms 55:8, “I would hasten my escape from the windy storm and tempest.” Situating portfolios to weather storms is essential. Finding investments with a firm footing and solid foundation should help ensure that assets are not only sheltered, but also well positioned when the clouds part.
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