The Russian Invasion of Ukraine has yielded horrific destruction. The human toll is unimaginable. And I see no particular reason the attack will end anytime soon. The oil price, wheat and corn volatility are tumultuous due to the War.
‘The Ukraine produces almost 25% of worldwide sunflower seeds that are used in food processing. The impact will be widespread if the crops can’t be put in due to the war. Additionally, fertilizer is in such short supply and expensive in the US we will plant fewer acres in corn than last year. The rise in food prices will certainly warranted.’ WSJ April 19, 2022
I wonder if anyone remembers we had a Recession in the first half of 2020 with the Coronavirus lockdowns? According to the St. Louis Federal Reserve Bank January 27, 2022, ‘the Coronavirus Recession of 2020 saw a decline in the US economy of over 11% of GDP. In 6 months! The 2009 Financial Crisis saw a year-long Recession with GDP dropping just 3%.’
Did a ‘stock market crash’ already happen?
‘Chinese Tech has suffered a 70% crash over the past year February 2021-March 2022’. Bloomberg March 14, 2022 “High flying ‘not yet profitable’ US Tech 68% decline over the past year. Fortune February 21, 2022. These are ‘dot com’ level crashes that have already happened.
Oil, gas and materials have skyrocketed as inflation has surged.
Thus, the S&P 500 has been flat May 2021-March 2022. Trading Econimics.com April 12, 2022
Wall Street Strategists are predicting the next recession within the next six months to a year and a half; However, the reality is -1% US Growth rate First Quarter 2022 is the Atlanta Federal Reserve Bank forecast 4/13/22. A Recession is defined as two negative quarters of GDP growth. A US Recession may actually be underway.
My experience has been that by the time the ‘media’ recognizes a Recession…. it’s over. ‘Investor sentiment hit 16% bullish April 13, 2022.’ AAII April 14, 2022 ‘Thus, the nice 5% Rally in S&P/Emerging Markets/ and Euro Stocks since mid-March.’ MarketWatch April 14, 2022
‘Shanghai China is in its 2nd week of a complete lockdown due to a Coronavirus outbreak.’ China News 4/9/22
The virus lockdowns, like the War in the Ukraine doesn’t show much sign of ‘going away.’
8 ½ % inflation reported today. The highest since 1981. WSJ 4/13/22
This pushed the US Federal Reserve Bank to raise interest rates in March. ‘Home mortgage rates touched about 5% on April 14, 2022, up from around 2.75% Summer 2020.’ WSJ 4/14/22
This has led to a slowdown in housing with ‘pending home sales down 20% in the past 4 months’ Y charts 4/1/22
‘US Bank said that investor pessimism has reached its highest level since records have been kept.’ Bloomberg April 12, 2022.
Which means I have turned optimistic.
My thought is that this is a dark hour, in the next few months, we should see a ‘high’ in inflation. This bodes well for entry into longer term bonds. This also bodes well for dividend paying value stocks in Developed markets. Additionally, after 14 years of no returns in Emerging Market Stocks, the next few years could see an impressive rise in EM value stocks.
Enjoy your Spring!
Disclosure: The information and opinions presented here are those of Wade McFee and are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions, views and information expressed in this commentary are subject to change without notice based on market conditions and other factors. You should contact your investment representative, attorney, accountant or tax advisor with regard to your individual situation
Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results
Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.