Monday, March 21, 2022
U.S. stocks gave back some gains on Friday after a three-day winning streak. Major equity markets including the S&P/TSX still ended the week up despite the geopolitical risks arising from the ongoing Russian-Ukrainian war; crude oil prices that rose above $103 per barrel, rising commodity prices and continued supply chain issues.
The big news of the week was the Federal Reserve (Fed) raising interest rates for the first time in three years. The Fed opted for a 0.25% increase to begin addressing inflation while avoiding delivering another shock to markets already dealing with the impacts of Russia's war in Ukraine. Markets have been anticipating rate hikes for some time now, so this didn’t come as a surprise.
The Fed also charted out another six additional rate hikes for 2022. This helped remove some of the uncertainty that the markets face this year. The Fed may revise its projections for where interest rates will end this year if inflation does not moderate fast enough. Increasing interest rates is a policy designed to combat inflation. And, as noted previously, it’s a delicate balancing act. Move rates too quickly, and it risks harming businesses who carry significant debt. Increasing interest rates also acts as a barrier to economic growth. Businesses may be less willing to borrow at higher rates to reinvest in their businesses. Consumers may be less willing to borrow and spend.
Technology stocks got a boost following the Fed's decision. Whether this will be sustained remains to be seen, as some believe tech stocks have reached a bottom while others are not so certain. After leading the market higher for the last several years, technology stocks have led the market lower so far in 2022. The rebound was most welcome for investors in the US economy, which continues to be dominated by the largest global technology companies.
The bottom line? We’ll be writing about inflation, interest rates and geopolitical risk for a while. (1)
Rising inflation continues to be one of the main trends in 2022. Higher oil prices will fan the flames of inflation. So many of our consumer products are derived from oil – plastic containers, roof tiles, tires, eyeglasses, the interior of cars, toys…the list goes on. We are closely watching the impact that the current economic situation has on other commodity prices. Certainly, with the conflict in Europe, there is pressure on food (i.e., wheat, corn) but also on other commodities like copper, aluminium and fertilizer.
Geopolitical tensions could potentially extend beyond the Russian-Ukrainian war. China sailed an aircraft carrier through the Taiwan Strait just hours before the video call between U.S. President Biden and Chinese leader Xi Jinping on Friday last week. China continues to claim democratically ruled Taiwan as its own territory and has, over the last two years, significantly increased its military activity near the island to assert its sovereignty claims. (2)
As you can see, there is a lot going on so we will be reaching out to you to set up a time for a call or Zoom meeting with you to discuss your investment strategy and any other questions you may have.
Markets & Investing – Raymond James
Fed raises interest rates for first time in 3 years, projects 6 more hikes as inflation soars
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Russia-Ukraine: How to Handle Geopolitical Risk
Fed raises interest rates for first time since 2018
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.