As the first quarter of 2022 draws to a close, concerns about rising inflation, rising interest rates, and geopolitical tensions are on forefront of investors’ minds. These topics are frequently in the news, and questions are constantly posed and answered, and not always in a positive light. It appears that the majority of individuals hear and discuss unfavorable news. Well, I want to touch on a few positive points and explain some encouraging patterns in the markets and economy to reassure you that there is light at the end of the tunnel. Let’s begin.

1. Jerome Powell and the Federal Reserve finally convened their much-anticipated March meeting, laying out what to expect in the coming year, at the very least, and maybe two years. The plan is to raise interest rates at each meeting (6 meetings left) until the end of the year, or at least that’s what their committee’s interest rate forecast suggests (see forecast below). This is significant because it removes some uncertainty about rates and gives hope that inflation will begin to decline in the second half of the year. Investors can now better predict what will happen in the months ahead, which was reflected in the market rally soon after the conference. The Fed has been completely transparent in order to avoid shocking the markets, and I expect this to continue.

2. According to reports published earlier last week, Ukraine and Russia are reportedly in talks to reach a compromise. While progress has been slow, it may signal that a deal will be reached in the coming weeks. Ukraine also appears to be holding its ground on the battlefield, which is good since the more progress they make there, the more likely Russia is to agree to a compromise. Furthermore, we could expect a rally if a peace treaty is signed. Even the prospect of a treaty has generated some optimism, contributing to last week’s market rise. The recovery might be considerable, bringing us back to pre-pandemic levels or possibly higher. Although there are no guarantees that a treaty will be signed, treaty meetings scheduled in the near future offer us hope that this will be resolved soon.

3. The Fed expects inflation to start declining in the third quarter of this year as a result of interest rate hikes. Other variables, aside from raising interest rates, can aid in the fight against inflation. Supply chains are one of them. Supply chains are still striving to catch up with demand, so once they do, we may expect inflation to decrease. The labor market, which is gradually stabilizing, is another major contributor to helping supply chains catch up. Also, oil remains a major driver of inflation, and securing greater supply, whether by negotiating with OPEC members or reopening the Keystone Pipeline, may significantly reduce inflation. There are numerous factors contributing to rising inflation, and it appears that some of the major causes are improving, and that there are options that we may pursue in the future to help lower inflation.

4. Our economy remains strong and capable of withstanding higher interest rates. Consumers came into this year with a huge backlog of unmet needs for services and significantly more money to spend on them than they did before the outbreak. People continue to book trips, attend concerts, and eat out, demonstrating this in real time. Unemployment is also on the decline. COVID no longer appears to be a concern, thus more people are returning to work. This trend is likely to continue throughout the year. Another driving force is the corporate expansion that we are witnessing. Companies continue to increase earnings and either reinvest it back into the business or pay a dividend to shareholders. We see many favorable economic variables in our economy, and I don’t see this changing anytime soon.

Despite the barrage of negative news, we may look back and see, as we did during the pandemic and other market events, that this was a fantastic buying opportunity. There are various things that will aid the economy in overcoming its current difficulties. In a year, we might discover that businesses were relatively inexpensive and that we were standing in front of a TJ Maxx clearance rack. Now all you have to do is get the guts to make a purchase! I’m not predicting that a rally will happen overnight, but I am convinced that you will be glad you bought that handbag or suit at a cheaper price now rather than in a few years. So, whatever you hear or see, keep in mind that there is a light at the end of the tunnel. All we have to do is be patient.

-Andrew Ochoa

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