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Never a Dull Moment... The Latest from the Fed [Video] Thumbnail

Never a Dull Moment... The Latest from the Fed [Video]

There have been few dull moments during 2022.  Supply chain disruptions, surging inflation, war in Ukraine, rising interest rates, a bear market, and the likelihood of an economic recession have kept everyone on edge. 

The last two months have offered some relief as the S&P 500 rallied over 17% from its June 16th low through August 16th.  The rebound was aided by last month's comments by Fed Chairman, Jerome Powell, who indicated the central bank could potentially curb its march toward higher short-term interest rates after back-to-back three quarter percentage point hikes in June and July.   Shortly after those comments, July's inflation rate came in at 8.5%, lower than June's 9.1% reading, but still elevated.  

On Friday, Fed Chairman Jerome Powell took the opportunity at the Fed's annual economic symposium in Jackson, Wyoming to reassert that inflation remains public enemy #1. Investors had hoped that short-term rates were somewhere near a peak, but Powell's comments indicated the Fed still has some heavy lifting to do in order to tamp down rising prices.  The markets were clearly disappointed as major stock market indexes fell sharply.

Given the year so far, it is no surprise that the U.S. Index of Consumer Sentiment recently slumped to its lowest level in 50 years, as seen in the following chart:

Chart: Consumer Sentiment hits 50-year low

This data begs the question, are things really that bad right now?  In 2020, the world locked down in response to the pandemic.  In 2008, the global financial system was on the verge of collapse.  In 2001 there were the 9/11 terrorist attacks. In 1980, inflation and interest rates were both above 14% and unemployment peaked at 10.8%.  In 1974, the oil embargo had motorists waiting in lines for hours at the gas pump.  Within a year or two of each of these events, the S&P 500 had significantly steeper declines than we have experienced in 2022. 

A closer look at the chart reveals a potential silver lining.  There are eight distinct sentiment troughs (blue dots) with the subsequent gains in the S&P 500 over the following 12 months listed next to each dot. The 12-month gains following these sentiment low points ranged from +14.2% to +43.6% with an average of 24.9%.  Conversely, the 12-month returns following sentiment peaks (red dots) averaged just 4.1%.  The data suggest that investors have been rewarded by staying invested (or investing more) when sentiment is low.

While the market environment remains challenging, we remain resolute that our investment strategy combined with our time-tested disciplines of diversification, periodic rebalancing, and tax loss harvesting (where appropriate) will see us through to better days.  We stand at the ready to continue to make strategic adjustments as warranted.



Advisory services are offered through Darrell Capital Management, LLC, an Investment Advisor in the Sate of California.  All content is for informational purposes only.  It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Investing always involves risk and the possible loss of capital. Opinions expressed herein are solely those of Darrell Capital Management, LLC.  The information contained in this material has been derived from sources believed to be reliable but is not guarantee as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Being registered as an investment advisor does not imply a certain level of skill or training. Social media posts reactions and comments should not be viewed as endorsement or testimonials. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any state other than the state of California or where otherwise legally permitted.