The Dow (-4.0%), NASDAQ (-5.3%), and S&P 500 (-4.6%) each fell sharply last week, as the indexes approached or breached their YTD lows. Meanwhile taxable and tax-free municipal bonds also lost over 1% for the week.
Last week, the Fed raised interest rates by 0.75%, as expected by most economists. However, it was Fed Chairman Powell’s remarks on Wednesday, as he warned of pain to come and that “balance” in the labor market needs to be restored. In other words, the Fed is making it clear that they will continue to aggressively raise rates in order to combat inflation, and to also slow down the labor market, as the strong demand on labor is also contributing to inflation. These comments led the markets swiftly lower on Wednesday, and for the remainder of the week.
At Menninger & Associates, we have been paring back on risk in our managed portfolios for the past six months. The portfolios currently are taking less risk in both the stock and bond markets. Interestingly though, our portfolios had orders to buy stock ETFs in the event the stock market dropped like it did last week, so we purchased stocks near their YTD lows last week. Buy low, sell high, right? In our professional opinion, the markets will continue to show pressure until signs of inflation begin to ease and, more importantly, the Fed indicates it will slow down or stop their interest rate hikes. This is likely to last for at least a couple more months. Regardless, we are closely monitoring economic and market conditions and will continue to revise the portfolios if we deem appropriate.
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