Weekly Market Update with Brian Ransom 22 April 2022

Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.

Another week and 5 more days of market chop! Following a fairly strong rally through the month of March, the S&P has failed to maintain the momentum and now teeters on a vacuum of empty space between the current price and the lows established at the beginning of March.

In the news this week, Netflix had a rough Wednesday with a significant pullback of 35% following a quarter of poor results. Federal Reserve chairman Jerome Powell sealed the deal on a 50 basis point increase of interest rates for the upcoming Fed meeting. And this hawkish stance reverberated through the stock market and send the 10-year treasury yield higher.

Last week, I highlighted the rising odds of a recession and many economists including Goldman Sachs are in agreement. So I want to spend a little bit of time talking about what that means.

Rising interest rates, when they rise rapidly and violently, tend to reverberate throughout the stock & bond market and the economy. Here in 2022, the Fed essentially has no choice but to rapidly increase interest rates to fight this, inflation as measured by the CPI.

Past interest rate hikes have caused or coincided with significant, prolonged recessions like the Global Financial Crisis, the Dotcom recession, and the 2020 pandemic. But not all hikes result in a recession as is the case in 1994. And in 1988, the hiking cycle resulted in a recession but was very mild.

Here is the 1988 hiking cycle beginning in the Spring of ’88. The recession itself didn’t hit until 1990 with a 19.6% pullback that only lasted 7 months.

Here is the 1994 cycle that caused a small pullback in the S&P but ultimately only resulted in sideways chop over the next 9 months and did not cause a recession. So the moral of the story is that market volatility during a hiking cycle is normal and even if it causes a recession that does not necessarily mean asset losses will be significant.

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