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  3. Guest Blog: Cetera® Investment Management's Commentary on Today’s Market

Guest Blog: Cetera® Investment Management's Commentary on Today’s Market

Submitted by JMB Financial Managers on May 31st, 2022
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 Authored by: Gene Goldman, Cetera Investment Management

 

This Market Volatility Isn’t Going Anywhere

 

  • Market volatility continues as financial markets watch earnings, economic data and the Fed.
  • Concerns about the consumer and corporate profits drove today’s drop.
  • Our base case continues to be that the economy can withstand these headwinds.

 

Today, equities had one of their worst selloffs since 2020. Triggering this pullback was a disappointing earnings report from a major retailer. In the report, management commented that unexpectedly high costs (including freight and transportation), inventory impairments, and markdowns to address lower discretionary product sales would hurt profit margins going forward. Investors took this as a sign that corporate profits, especially in the retail sector, would struggle on elevated inflation and weaker consumer spending. While we agree that consumer spending will shift, and likely weaken to an extent on these worries, we do believe that the fundamentals for the consumer remain solid and this is a possible overreaction.

The consumer is so important to our economy as it represents about 70 percent of economic output. Headwinds from a more aggressive Federal Reserve (Fed) and higher borrowing costs will impact the consumer. However, the consumer is coming from a solid fundamental base, as noted in a once-in-a-generation strong labor market, low debt-to-income levels, and still-elevated savings levels.

Evidence has emerged that consumers are starting to change their spending habits on elevated inflation levels and higher borrowing costs. However, there is so much positive evidence to the contrary. For example, yesterday’s April retail sales report showed proof that the consumer remains resilient in the face of these headwinds. Not only was March’s data revised upward from 0.5% to 1.4%, but April’s report also showed strong sales throughout. For example, at auto dealerships, consumers are buying cars and they are now better able to find them as the auto industry’s parts shortage is showing clear signs of improving.

While the April retail sales report is just one indication that the economy is fundamentally solid enough to withstand an aggressive Fed trying to rein in inflation, there is other evidence to support this. For example, on the economic front, the continued rebound in manufacturing, helped by supply chains improving and companies striving to rebuild depleted inventories, and the surge in business equipment investment helps our base case that a 2022 recession is not in the cards. On the inflation front, we are seeing some moderation in goods inflation and a pick-up in labor force participation levels that should help continue lessen wage growth pressures. Potentially less inflation pressures may lead to the Fed being less aggressive than the markets currently anticipate. If the Fed proves less aggressive, the impact from higher interest rates on the economy might be less.

Overall, like the Fed, the financial markets are watching data very carefully to gauge how fast monetary stimulus can be removed. We remain committed to our base case that the economy and financial markets are facing headwinds, such as higher borrowing costs, but the economy is strong enough to withstand the shock of higher rates. Yes, it will be difficult, and the daily slew of economic data and earnings reports will create bullish optimism and bearish fears driving market swings like today. But we remain confident that an economy coming off of a very strong economic base, a still-strong consumer experiencing a once-in-a-generation labor picture, and overall supply chain improvement and strong business spending will help support a rebound in inventory rebuild production. It is important to work with your Cetera financial professional through this volatile market and to ensure your risk tolerance is aligned with your allocation. While we don’t recommend timing the market, history has shown that a deep market correction can potentially offer a good long-term entry point, particularly for investors than have remained on the sidelines.

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This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter or check out our short The Week Ahead videos every Monday.

Additional Resources

Here are some additional resources if you would like to learn more about investment management.

  • Stock Market Volatility: Acting vs Reacting
  • Matching Your Investments to Your Risk Tolerance
  • 3 Proven Ingredients for Improving Investment Results

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About Cetera® Investment Management
Cetera Investment Management LLC is an SEC registered investment adviser owned by Cetera Financial Group®. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.
About Cetera Financial Group

“Cetera Financial Group” refers to the network of independent retail firms encompassing, among others, Cetera Advisors LLC, Cetera Advisor Networks LLC, Cetera Investment Services LLC (marketed as Cetera Financial Institutions or Cetera Investors), Cetera Financial Specialists LLC, and First Allied Securities, Inc. All firms are members FINRA / SIPC. Located at 655 W. Broadway, 11th Floor, San Diego, CA 92101.

Disclosures
Individuals affiliated with Cetera firms are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.
The material contained in this document was authored by and is the property of Cetera Investment Management LLC. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by affiliated and non-affiliated registered investment advisers. Your registered representative or investment adviser representative is not registered with Cetera Investment Management and did not take part in the creation of this material. He or she may not be able to offer Cetera Investment Management portfolio management services.
Nothing in this presentation should be construed as offering or disseminating specific investment, tax, or legal advice to any individual without the benefit of direct and specific consultation with an investment adviser representative authorized to offer Cetera Investment Management services. Information contained herein shall not constitute an offer or a solicitation of any services. Past performance is not a guarantee of future results.
For more information about Cetera Investment Management, please reference the Cetera Investment Management LLC Form ADV disclosure brochure and the disclosure brochure for the registered investment adviser your adviser is registered with. Please consult with your adviser for his or her specific firm registrations and programs available.
No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The opinions expressed are as of the date published and may change without notice. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision.
All economic and performance information is historical and not indicative of future results. The market indices discussed are not actively managed. Investors cannot directly invest in unmanaged indices. Please consult your financial advisor for more information.
Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards.
A diversified portfolio does not assure a profit or protect against loss in a declining market.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by a third party author to provide information on a topic that may be of interest. The third party author is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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Individuals affiliated with this broker/dealer firm are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

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