Jul 27

Global Trends and Market Volatility

By Jim Christy, Wealth Advisor

Inflation, rising interest rates, a global health pandemic now in its third year, Russia’s invasion of Ukraine, supply chain disruptions. The global economy and markets are currently facing the perfect storm of challenges as investors eye an uncertain second half of 2022.

Through June 30, the S&P 500 index is down 20.6%, and the Bloomberg Aggregate Bond Index is down 10.35%. It is the first time since 1969 (over 52 years ago) that both the broad stock market index and the broadest measure of fixed income (bond) assets have been down in the same year. Historically, it has been extremely rare for both stocks and bonds to be negative at the same time. Normally, in difficult economic times, investors will gravitate toward less risky assets, buying U.S. Treasury bonds and other interest-bearing securities and thus bidding up their price.

Yet, with stocks trading at a significant discount to what they were at the start of calendar year 2022, it may be useful for us to consider whether there are “bargains” out there that would be attractive additions to our longer-term investment portfolios. So, let’s consider certain trends or underlying currents in the economy that, as Warren Buffett might say, “help us gain mastery over our emotions” and “allow things we have learned in the past to create a better future.”

Notwithstanding the fall of the Soviet Union more than 30 years ago, U.S. aerospace and defense spending has increased materially ever since, as our nation faces newer and more complicated threats from China, from state-sponsored terrorism and state-supported rogue cyber adversaries. Consider in that context longer-term investments in A&D industry leaders.

As global pandemics appear more common, nations with growing populations of elderly citizens, including the U.S., Japan, Western Europe, China and South Korea, are likely to increase health-related spending and encourage biopharmaceutical research. In that context, consider investments in healthcare sector stalwarts.

Given the pervasive presence of semiconductors in every modern device, from cell phones to gaming, electric vehicles, robotics, appliances, and electronics, consider leading semiconductor chip manufacturers.

Increasing population in the Sun Belt region of the United States means growing demand for electricity and reliable and diversified supplies of power for homes, businesses, factories, and farms. Leading U.S. utility companies are all positioned to benefit from both demographic movements and industrial and commercial-siting trends of the 21st century.

If inflation is poised to be with us for an extended time, assets that tend to rise in value as inflation increases are likely to be potentially attractive holdings. In this category, think of commodities. Commodities are raw materials used to create the products consumers buy, from food to furniture to gasoline or petrol. Commodities include agricultural products such as wheat and cattle, energy products such as oil and natural gas and metals such as gold, silver and aluminum.

Of course, under any market conditions, and especially during volatile ones, it is important to maintain a commitment to a long-term strategy. This permits investors to “tune out” the daily news distractions and the shrill commentaries that can potentially derail a well-conceived investment strategy. Financial success and retirement security are not achieved in the short-term, and like most things in life, require both discipline and patience. This is why we think that the professional and trusted relationship you enjoy with your financial advisor is an essential foundation for navigating today’s market complexities. We are here to help you navigate through these difficult times.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes, therefore, the information should be relied upon when coordinated with individual professional advice. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
Author
James T. Christy, J.D.

James Christy, J.D.

Wealth Advisor

Recent Articles