Surging interest rates and persistent inflation put sharp downward pressure on bond markets, which are on track for one of their worst years ever, and on U.S. equity markets, which had their worst first half of a year since 1970.

May returns belie an otherwise volatile month that saw stocks fall into bear market territory (down 20%) before a sharp rally to close the month. We remain defensive as we enter the “mid term” summer months.

There are several counterintuitive and contrasting data points happening simultaneously – today’s strong job number is another strong data point in a weak environment. We will be paying close attention to upcoming economic data.

We do not believe that a recession is imminent. However, looking out over the next several months, we do see risks skewed to the downside, as the Fed continues to tighten and inflation weighs on consumer spending.

Investors should continue to brace for more volatility in April and May. The market is digesting quite a bit (inflation, rates, Russia, midterms), and it will take some time for these concerns to subside.

In short, at least within U.S. markets, volatility has increased, but not markedly. Said another way, the magnitude of movements on a daily basis is higher, but not that much higher, and certainly nowhere near where we were during the COVID-19 selloff of 2020.

Global equity markets quickly declined as volatility spiked, oil prices shot higher, and the odds of European recession increased dramatically. Markets hate uncertainty, and at this moment, uncertainly is plentiful.

With the holidays over, and our “diets” kicking into gear, investors faced a grueling January. The usually bullish month produced flustered markets, Omicron-related sick days, and a couple Nor’easters here on the East Coast for extra fun.

Despite the emergence of two fast-spreading COVID-19 variants, inflation that has proven more “sticky,” and central banks beginning to remove monetary accommodation, U.S. equities posted a third-straight year of strong double-digit gains.

If anything, calendar year 2021, as with 2020, was not dull. Contested elections, COVID’s persistency, supply chain issues, and inflation galvanized our attention but did little to deter rallying markets.

A quiet Wednesday morning has allowed me to gather my thoughts on recent events. Of course, we can’t pretend to know much about the most recent Covid headlines, but we can do our best to interpret data and evaluate from our market-centric lens.

Like so many Octobers past, the historically turbulent month had plenty of reason to continue last month’s sell-off. There were earnings disappointments from tech giants Apple and Amazon, a measly U.S. GDP report, and plenty of noise around inflation and the Federal Reserve. Fortunately, the stock market ignored it all.

Making drastic portfolio moves based on trying to “time” a market correction has proven to be a horrendous investment approach. Yes, our team at Highland Peak Wealth has been working around the edges to improve short-term resiliency, but we have not altered our long-term view.

A solid second quarter for stocks marks the fifth consecutive quarter of gains, the longest such streak since 2017. Corporate earnings have been stellar, hiring continues to improve, and recent readings of small business-owners’ confidence and CEO Confidence have bounced back well above their pandemic lows.

I recognize that this month’s newsletter is a tad different from the month’s past, but I hope you find it useful. As is the norm, bombastic headlines can make inflation sound scarier than it truly is.