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Inflation Moving Higher - March Market Update

Inflation Moving Higher - March Market Update

March 15, 2022

Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102


8 min read

  • After bouts of volatility in recent months caused by the outbreak of the Omicron variant of COVID-19, and the Federal Reserve Bank shifting policy on persistent and rising inflation, the markets have been rattled once again by Russia’s invasion of Ukraine.

  • Inflation is still moving higher with oil, food, wages, and housing prices continuing to rise.

  • The downturn in stock prices, along with strong fourth-quarter earnings have caused stock market valuations to become more attractive.

  • While stock market volatility has picked up, economic reports continue to show positive signs. It appears that economic growth, while slowing, will still be positive for this calendar year.

  • From a historical perspective, market downturns caused by military geopolitical events have historically led to eventual bounce backs in both economic activity and stock prices.


The Investylitics Committee of The Horizon Advisor Network met on the afternoon of March 7th to review our portfolio allocations and performance, as well as the economic and geopolitical backdrop we are facing today.

We are happy to report that the portfolios managed by the committee have held up reasonably well. They have performed in line with their risk adjusted, index-based benchmarks over the last one, three and five years. While we are pleased with the relative performance of our models during this time, we also realize that it is never fun to see declining asset values during market downturns.

Over the last six months, we have witnessed multiple periods of volatility due to several factors. These have included concerns about China’s economic growth slowing and problems with loan losses in their real estate markets, the onset of the Omicron variant of COVID-19, the Federal Reserve Bank stating its intention to shift its policy to aggressively fight rising inflation, and now, the onset of war with Russia invading the Ukraine.

Inflation continues to move up to levels not seen in nearly 40 years. There are numerous forces in play with this dynamic. There are some signs that industrial production has picked up and started to create more inventory, beginning to ease supply chain constraints. However, wages continue to rise, as do housing prices and the cost of oil.



Against this backdrop, economic reports continue to come in relatively strong. Last Friday’s jobs report showed that nonfarm payrolls rose by 678,000 in February, well ahead of expectations. The unemployment rate edged down to 3.8%, as the Bureau of Labor Statistics noted that job growth was widespread. Additionally, the previous two months job gains were revised upward, and wages grew by more than 5% year-over-year.

Corporate earnings have also been a bright spot. According to FactSet, as of year-end 2021, it was estimated that 4th quarter earnings growth for the S&P 500 would be 21.2%. With nearly all companies reporting, the blended earnings growth rate for the index has been 30.9%. 77% of companies have reported positive earnings surprises, and 78% of the companies have reported revenue growth above expectations.

We have also seen the Citi Economic Surprise index move higher. This indicates that actual economic reports have been consistently stronger than what was expected. This puts the index near its highest level since March 2021, as seen in the chart below.



The market started the year with a sharp downturn due to fears about the Fed raising interest rates and pulling back on financial support of the economy. We have now had a second downdraft due to Russia’s invasion of Ukraine and spiking oil prices. The combination of corporate earnings rising while stock prices are falling have made valuations, as measured by the P/E ratio, more attractive on a growing forward basis.



We also believe that consumer balance sheets are in good shape, as personal savings are still elevated due to prior government stimulus checks and enhanced unemployment benefits. At the same time, consumer debt servicing ratios are near the lowest levels they have been since 1980, as consumers have paid down debt, and interest rates remain relatively low.

During times of geopolitical uncertainty, markets pullbacks are common. While no one can accurately predict how far the markets might drop, it is important to remember that the S&P 500 is already in correction territory, having fallen more than 10%. We also know that the NASDAQ and Russell 2000 indices have fallen close to 20%. It is important to remember that no one has ever made money by buying high and selling low.

None of this should come as a surprise to long-term investors. As a matter of fact, this is the seventh decline of more than 10% the stock market has experienced since 2010. The chart below shows the subsequent rebounds that occurred at different intervals after these episodes. The downturns have generally provided good buying opportunities for those who are depositing money regularly to their corporate retirement plans, such as 401(k)s, or are rebalancing their portfolios to sell high and buy low.



We also know that past times of military action have caused short term volatility, but stock markets have generally been resilient. According to Morningstar and Ned Davis Research, stocks have generated positive performance one year after an act of aggression for 75% of the armed conflicts since World War II. While past performance is no guarantee of future results, it is a guidepost that we look to for wisdom and perspective.

Geopolitical Conflicts Have Had Minimal Impact on Long-Term Equity Performance

Growth of $10,000 in the S&P 500 Price Index (1940–2021)


Final Takeaway

Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. Data shown does not include the reinvestment of dividend payments. Data Sources: Morningstar, Ned Davis Research, and Hartford Funds, 3/22

The committee will continue to actively monitor these events, their impact on the overall economy and the portfolios you entrust to us. We stand ready to take action if and when necessary to help you, our trusted friends and clients. The committee thanks you for your continued trust in our team in our process.


Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102


Members of the Investment Committee

  • Jesse Hurst, Financial Advisor - Chair, Impel Wealth Management

  • Kevin Myers, Financial Advisor - ATL Global Advisors

  • Clint Gautreau, Financial AdvisorHorizon Financial Group

  • Nathan Ollish, Financial Advisor - Impel Wealth Management

  • Joy Schlie, Financial AdvisorFHT Financial Advisors

The views stated in this piece are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.