Fortune Favors the Patient
It is a strange time for the U.S. economy.
On one hand, there is a lot of good economic news. GDP is growing at a solid pace. Unemployment is low. Consumers are in the best financial shape in decades. Corporate America is strong and profits have never been higher. It is no fluke that stocks have performed so well since their March 2020 low.
On the other hand, there are challenges. Chief among them is stubbornly high inflation, which has reached a forty-year high. Shortages of workers and goods contribute to inflation and are a reminder that the economy isn’t performing as well as it should. This is reflected in poor consumer sentiment.
Naturally, many investors feel unsure or even confused about the outlook. The economy usually lends itself to a simple narrative: boom or bust. But today there are good and bad economic developments happening at the same time. Perhaps this shouldn’t be a surprise. The economy was hammered into pieces by the pandemic and now is being reassembled.
How should investors make sense of it all? By recognizing that the negative aspects of the economy are likely to be short-lived, while the positives are lasting in nature.
The negatives, especially high inflation, are mostly tied to COVID and the war in Ukraine. Neither situation is permanent. The positives are foundational. This includes strong consumer and businesses fundamentals, as well as enduring features such as a culture of entrepreneurship and innovation, robust capital markets, and America’s ability to attract top business and scientific talent from around the world. With these foundations in place, we are confident that patient investors in the stock market will be rewarded.
In this quarter’s report, we review recent market developments, discuss today’s challenges including high inflation and the war, and suggest how investors should position portfolios for what comes next.
