Page 70 - August 2022

FINANCIAL PLANNING
MAKING SENSE
by Cade Peterson, Financial Advisor
It seems that no matter what direction you
turn, there’s negative news to be reported.
I’d say that there’s a 95% chance that we are headed into a recession - if we’re not already
RATE HIKES
Jerome Powell is Chairman of the Federal Reserve, referred to as the fed. The fed is in charge of carrying out monetary policy to keep the economy running smoothly. Why are they raising rates so much? This is a question that commonly arises. The fed raises rates to combat
CONSUMER SENTIMENT
What in the world is consumer sentiment? This is directly related to the strength of consumer spending. Consumer sentiment is also an excellent indicator of what stage the market cycle is in. In the webinar J.P. Morgan that I mentioned previously, the managing director told us that consumer sentiment is
OF THE NONSENSE
in one. We could very well be in a full swing recession by the time this article is published. Stocks have struggled in 2022. Bonds have also struggled and have had negative performance. What is looking up? Well, inflation is up, rates are going up, food prices are up, gas prices are up, you get the idea. We saw the highest rate hike in roughly 28 years with Chairman Powell announcing a 75-basis point hike. Despite the sanctions on Russia, they are still holding strong in efforts to overrun Ukraine. What does all this mean? I’m sure you hear it on the news or see it in the paper but how do we make sense of it all? In this article I’m going to do my best to make sense of the nonsense.
inflation. They are trying to slow economic growth and strengthen the dollar. Inflation was reported at 8.6% and the fed likes to keep the inflation rate around 2%. They aren’t exactly in the same ballpark as their 2% target. When they raise rates, consumers and institutions borrow less because it’s more expensive. I was recently on a webinar with a managing director from J.P Morgan. He said that the fed has never reduced inflation by more than 2% without pushing the United States into a recession. This
is one of the reasons why I’m telling you that we are more than likely going to find ourselves in a recession.
at an all-time low. He said the only reason investors should not be buying right now is if they believe the market will never recover and eventually go to zero. My personal thoughts on that statement are that I couldn’t agree more. This market we are in is creating such a unique buying opportunity. I believe we won’t see another opportunity like this for quite some time. On the next page is an awesome chart from J.P. Morgan. This chart is directly related to the consumer sentiment index with subsequent 12-month S&P 500 returns. The first thing I want to point out is the June 2022 number being at an all-time low. This means that consumers have the lowest confidence
68 SPEEDHORSE August 2022