Review
The first quarter was one of the most volatile quarters we have seen since the pandemic started in 2020 and resulted in the worst quarter for equities in 2 years. Concerns over inflation and the war in Ukraine weighed heavily on the investment community. Despite the rapid inflation, the US economy continued to look strong.
Due to inflation concerns, the US Federal Reserve raised interest rates for the first time since 2018. With spiking inflation, a growing economy and record low unemployment, the Fed guidance suggested significant rate increases until inflation is under control.
Outlook
As inflation is a substantial concern, our belief is that with historically high amounts of cash built up in savings and low debt, the consumer will be able to absorb inflationary cost increases as well as rate hikes. We maintain our view that we will continue to see higher volatility in the first half of the year but expect to see a positive second half of the year within the equity markets.
Equities
The significant pullback in equities over the last few months has created opportunities to rebalance portfolios to take advantage of our long-term belief that equities will continue to outperform. We will utilize situations to increase exposure to value areas and reduce exposure to growth. Value tends to be better suited for a rising interest rate environment.
Fixed Income
We are still underweight fixed income. With interest rates rising, fixed income will struggle. VCM portfolios are positioned for an inflationary environment. We are currently exposed to shorter duration fixed income as well as less interest rate sensitive income areas.
Alternatives
Our commodities position was an outperformer over the last few quarters as it is historically one of the best performing sectors in an inflationary environment. We continue maintain a broad-based commodity position in client portfolios as we believe inflation has not peaked.
As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties.
Jason M. Vavra, CPA, PFS
Email: jvavra@vcm-wealth.com Website: www.vcm-wealth.com Twitter: @VavCap
Disclaimer
The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of future results.
