Our Insights

Financial markets hate uncertainty and we seem to have more uncertainty these days than normal. Uncertainty regarding when inflation will peak; how the numerous supply chain issues are resolved; how the war in Ukraine will end; China’s economic slow-down; the next strain of Covid; a broken immigration system; possible recession looming and of course, company earnings.

It appears that until several of these major uncertainties come into clearer focus, this market will continue to act in a manic pattern – more volatility and rollercoaster-like moves in the major averages.

The good news is that almost 80% of S&P 500 companies have reported higher earnings in Q1’22.  Last Friday’s strong relief rally is evidence that the market is paying attention to earnings and fundamentals – a sign that normal market mechanics are in place and are still working.  This is not a time to sell and retreat to the sidelines. Inflation appears to be peaking; supply chain bottlenecks are slowly being resolved and unemployment claims are at a 52-week low.

Now that the ‘dust is settling’ a bit on the big April and May market downdrafts, there is an indication that much of the selling pressure is attributable to large hedge fund de-leveraging, probably prompted by their prime brokers to moderate risk by reducing margin.  The same can be said of the crypto- currency trading platforms.

Key areas of the economy working right now are stocks that feature rising dividends, including fundamentally superior, energy, food, fertilizer and semiconductor stocks.  Real assets and natural resources are also a great way to hedge against inflation and the continuing market volatility.  Counsel Trust managed portfolios contain significant positions in these areas in addition to short-term bonds that step up yields as bonds mature and interest rates rise.

Markets are likely to continue consolidating in a volatile manner; not straight up as experienced since the Covid correction in early 2020.