On behalf of the entire investment team at Wilmington Trust, I would like to welcome our new clients, formerly of People’s United Advisors, a part of People’s United Bank, to our monthly flagship publication.
I was fortunate enough to spend much of spring break with my wife and two daughters on a boat. Our family has a lot of experience sailing, so we feel very at home on the water, but I strangely developed an acute case of land sickness when I returned home. Was it the lack of rolling motion or instead the disorientation I experienced returning to a very different rate and markets environment from what I left behind just a week earlier?
A few days back at my desk and the Bloomberg terminal seemed to settle my vertigo, which turned out to be well justified, as April ended up being the worst month for the S&P 500 since the onset of the pandemic—as well as closing out the worst quarter for bonds in about four decades. The tech-heavy Nasdaq Composite returned its worst month since 2008, and through April, the index had corrected 23% from its all-time high. The carnage continued this week. First-quarter U.S. GDP contracted, and the Consumer Price Index (CPI) hit 8.5% on a year-over-year (y/y) basis. This is the closest the U.S. economy has come to stagflation since the 1970s.
Notwithstanding this raft of troubling data, we see the economy as reasonably healthy, based on the continuing strength of consumer and business spending alike. Moreover, given current dynamics, we expect inflation to decelerate sharply over the balance of this year. While this tempts us to take advantage of the market drawdowns to deploy cash back into equities, in our view this would be premature. There remain two exogenous risks—specifically the Ukrainian war and the Chinese zero-tolerance-COVID policy—either of which could act to quickly reaccelerate the path of global inflation.
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