Calhoun County, AL – The first half of 2022 was not friendly to financial markets. The S&P 500 lost 20.6%, which was the worst performance for the index in the first six months of a year since 1970. The main culprit? Inflation.
Higher inflation is a result of various items. One of the causes has been supply chain disruptions caused by the COVID pandemic. However, the main cause of inflation has been an increase in demand. When the pandemic began, both the Federal Reserve (commonly referred to as the “Fed”) and the U.S. government took action to keep the economy afloat. The Federal Reserve slashed interest rates and significantly increased the money supply. The U.S. government stimulated the U.S. economy through multiple means as well. This ultimately resulted in too many dollars chasing too few goods. Whenever supply has a tough time keeping up with demand, prices go up.
Now that inflation has run so hot, the Federal Reserve is now taking action to get it back under control. The main way it is doing this is to raise interest rates, which essentially slows down the economy. The Federal Reserve has their hands full. If they don’t raise rates fast enough, inflation continues to run hot and drastically affects consumer discretionary spending and the overall economy. If they raise rates too fast or too aggressively, they run the risk of slowing down the economy too much and causing a recession.
The volatility in the stock market the first half of the year was mostly due to uncertainty around the outlook for inflation and the economy as a whole. Many fear that the Fed has no options at its disposal to slow down inflation without causing a recession. This uncertainty has driven selloffs in the market. You may be asking yourself: “What does all of this mean for me?”.
It is completely normal to feel concerned during a steep market decline. In this type of environment, it is important to stay calm and not make any irrational or emotional investment decisions. Market volatility is nothing new and part of the cycle when you are invested in the stock market. It’s also important to look at the history of the market and note that each time the market went through a period of volatility, it was resilient and eventually went on to reach new all-time highs. Having a financial advisor during periods like this can also prove to be helpful. They can guide you through difficult markets and help you to stay focused on your long-term goals.
Editor’s Note – Jonathan T. Jones® is a local financial advisor who will be a contributing author for the Calhoun Journal. He will be writing financial pieces to help readers understand the market and many changes that are currently happening in the financial world.
Jonathan T. Jones, CFP®
Wealth Manager/Financial Advisor, RJFS
501 Quintard Avenue, Suite 17
Anniston, AL 36201
256-237-2300
Any opinions are those of Jonathan Jones, CFP® and not necessarily those of Raymond James.
Securities offered through Raymond James Financial Services Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Wealth and Retirement Services is not a registered broker/dealer and is independent of Raymond James Financial Services.
