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Jeremy W. Benoit, CRPC, AIF

Economy Update - May 13, 2022


Now that the first third of the year has come to an end, I thought it was time to reach out to you and share my thoughts on all that we are experiencing.  It is hard to filter through all of the headlines and identify which will have a greater effect on the market. 


Our economy is strong and there are many very positive factors that suggest we will continue to grow from here.  Our unemployment rate is near all-time lows at 3.6% (as of March 2022).  Company profits have never been higher, as is evidenced by the S&P 500’s Earnings Per Share (EPS) which is currently over $200.  Historically EPS is around $100-$150.  More than 65% of our GDP (Gross Domestic Product) comes from consumer activity like shopping, buying cars or houses, going out to dinner or an entertainment event.  The consumer has never been stronger.  Wages are at all-time highs, any worker who wants a job can get one, and our overall net worth is strong.  Home values and, until recently, our investment accounts were at their highest levels.  However, there are some reasons for concern.  Inflation is at 40-year highs, as is evidenced by gas prices, and I’m certain that all of you can name an item in the grocery store that’s cost has increased significantly. We are still having supply issues, from cars and computer chips to cream cheese and juice in the stores.

The Markets

For the first time in my career, which spans 30 years, we are in a bear market for bonds.  Interest rates are rising and will continue to go up as The Fed raises rates to try to slow inflation down.  Higher interest rates mean higher costs when buying items that require borrowing; a house, vehicle, or other big ticket item.  If those items cost more than they did, people will buy less of them.  People buying less big-ticket items will mean less sales for companies.  Less sales means less profit, and that means the companies are worth less.  This causes the stock markets to go down in value, which is what we have experienced over the last several months.  The trick for The Fed is to raise rates to slow inflation, but not to the point that our economy goes into recession.  A very difficult task for sure!

Other Factors

Russia invaded Ukraine.  What was thought to be a quick invasion and take over has turned into a very long and deadly war that has no end in sight.  This leads to massive uncertainty as to what will happen and when it will happen.  The markets do not like uncertainty, and this brings chaos to the energy prices and food supplies around the world. 

Covid 19 continues to plague the planet.  As it travels around the globe over and over again the virus mutates, and we have to deal with different strains and different government reactions and business shutdowns.  Shutdowns lead to worker shortages, and this leads to supply chain problems which causes more inflation.

What Now

Over the last 40+ years, investors have experienced 14% drops within EACH calendar year on average while invested in the S&P 500.  More than 75% of the time the market also ended the year with a gain.  Over the last 15 years that gain averaged 10.7%.  How does this come together?  An investor needs to participate in ongoing volatility to participate in stock market gains over the long run.  The headlines that cause market volatility will change all the time, but it is normal for stocks to go down from time to time.  As an investor that is accumulating shares of mutual funds, these periods of decreased share prices can be a great opportunity to continue to buy shares at lower prices.  If you are at or near retirement this can feel very scary, seeing your account balance go down.  Many of you are taking income from Living Benefit Riders on your annuities; those payments are for life.  Others are utilizing our Benoit Financial Planners Managed Income Model and, while the principle is down, your payments have been consistent.  Please contact our office and we can address your specific situation if you are concerned.  I recently listened to a money manager speaking on TV and he said, “Every time we have had a correction in the stock market, the market went on to reach record highs and I have no reason to believe it won’t happen again this time!”  The only question is when will that be.

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