Providing Context on Recent Market Volatility

Monthly Market Summary

  • The S&P 500 Index returned -4.1% during August, underperforming the Russell 2000 Index (-2.0%) for a second consecutive month.
  • Energy (+2.7%) was the top-performing S&P 500 sector during August despite oil prices falling -9.7%. Utilities (+0.5%) was the only other sector to produce a positive return. Technology (-6.2%) was the worst performing sector as interest rates rose, followed closely by Health Care (-5.8%) and Real Estate (-5.6%).
  • Corporate investment grade bonds generated a -4.4% total return, slightly underperforming corporate high yield bonds’ -4.3% total return.
  • The MSCI EAFE Index of global developed market stocks returned -6.1% during August, underperforming the MSCI Emerging Market Index’s -1.3% return.

Stock & Bond Markets Endure a Bumpy August After July’s Gains

The S&P 500 produced a -4.1% return during August, but the headline number doesn’t tell the full story. Equity markets initially rallied during the first half of the month, with the S&P 500 gaining +4.2% through August 16th as July’s market rally continued. However, the second half of August marked a sharp reversal as the S&P 500’s gave back all its gains plus more. Credit markets also experienced a reversal during August as interest rates reversed higher and bonds produced negative returns. The increased volatility across stock and bond markets is being attributed to a wide range of investor views creating a tug of war effect in markets, as well as uncertainty regarding how long the Federal Reserve will continue to raise interest rates.

Federal Reserve Chair Pushes Back Against Hopes for Policy Pivot

The Federal Reserve held its annual August Jackson Hole meeting, and Chair Powell used his speech to forcefully push back against the notion the Fed will pivot and cut interest rates if economic data starts to weaken. Powell emphasized the central bank’s “overarching focus right now is to bring inflation back down to our 2 percent goal” and cautioned, “Reducing inflation is likely to require a sustained period of below-trend growth … [and] will also bring some pain to households and businesses.”

Investor hopes for a Fed pivot were one of the primary catalysts that propelled the stock market higher during July and August. Chair Powell’s speech dashed those hopes and sent the S&P 500 down more than -3% on the day of his speech. Why? Two lines from Chair Powell’s speech underscore the Fed’s goal, “There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.” This focus on lowering demand for goods and services may increase portfolio volatility during the months ahead as investors debate how long it will take the Fed to achieve its goal and the impact tighter policy will have on the economy.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Declining Labor Productivity & Rising Labor Costs

This month’s chart looks at a trend not seen in decades – declining labor productivity and rising labor costs. Figure 1 shows labor productivity, which is measured as economic output per hour worked, declined -2.5% year-over-year during the second quarter. The -2.5% decline in labor productivity is the largest decline in the data series, which began in the first quarter of 1948. Hourly compensation rose +6.7% year-over-year as a tight labor market drove strong wage growth.

A look at the underlying data provides additional context on declining productivity. Total output rose +1.5% compared to the same quarter a year ago, while hours worked rose a bigger +4.1% year-over-year. The data indicates workers produced more goods and services less efficiently. Why is productivity declining? One potential explanation is pandemic-related themes, such as remote work and inflation, make the process of measuring productivity more difficult and distort the data.

Thematic changes may also explain the productivity decline. The labor market experienced significant turnover during the pandemic, and it takes time for workers to learn new jobs. As an example, Delta’s CEO pointed to labor turnover as a cause of the airline’s recent operational issues: “Since the start of 2021, we’ve hired 18,000 new employees, and our active head count is at 95% of 2019 levels, despite only restoring less than 85% of our capacity. The chief issue we’re working through is not hiring, but of training and experience bubble.” In addition, capacity constraints may also be weighing on productivity. The capacity utilization rate, which measures the amount of potential output that is actually being realized, was 80% during June 2022. The peak utilization rate over the past 20 years was ~81%, suggesting businesses may be running up against the limit of how much capacity they can use efficiently.

The combination of declining productivity and rising compensation costs is a notable trend, and it remains to be seen whether it is a short-term phenomenon or start of a longer-term trend. One trend we will be monitoring in coming quarters is whether decreased efficiency and rising labor costs negatively impact profit margins.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Looking Back at a Rocky First Half of 2022

Financial markets remained unsettled and volatile during the second quarter. The stock market’s trend changed multiple times as investors continued to search for direction amid a sea of changing conditions. The S&P 500 finished the second quarter with its worst three-month period since the first quarter of 2020 and worst first half of a calendar year since 1970. This quarter’s letter recaps the first half of 2022 and discusses the top investment themes heading into the second half of 2022.

2nd Quarter Sees a Mixture of Old & New Themes

Investors navigated a combination of old and new investment themes during the second quarter. Inflation pressures remained top of mind as the headline CPI accelerated at a more than +8% year-over-year pace during both April and May. In response to persistent inflation, the Federal Reserve continued to tighten monetary policy by raising interest rates at each of the April, May, and June meetings. Like the first quarter, stocks traded lower as the interest rate increases caused investors to dial back their risk taking.

Multiple new themes also emerged during the second quarter. Several retailers, including Walmart and Target, reported substantial inventory buildups as inflation pressured consumer spending on discretionary items. The retailers warned their profit margins could decline in the coming quarters as they may need to mark down items to clear the excess inventories. From a monetary policy perspective, the Fed supplemented its interest rate increases by starting to shrink its balance sheet. The Fed is opting not to reinvest the proceeds of up to $30 billion of maturing Treasury securities and up to $17.5 billion of maturing mortgage-backed securities per month. The decision is another way for the Fed to decrease the amount of money supply and liquidity.

Federal Reserve Gets Aggressive at June Meeting

The Federal Reserve adopted a more aggressive tightening stance at its mid-June meeting. The central bank raised the federal funds rate +0.75% and unveiled a ‘strong commitment’ to bring inflation back down to 2%. For historical context, June was the first +0.75% increase since 1994. The Fed’s latest moves are another indication of how 40-year high inflation readings are driving the Fed’s monetary policy decisions.

How does the current cycle compare to prior cycles? Figure 1 compares the current cycle’s federal funds rate path against the last five cycles. Factoring in the +0.75% increase at the June meeting, the Fed has raised interest rates +1.50% since the first increase in March. Investors expect the Fed to maintain its +0.75% pace at the late-July meeting, which would make 2022 the fastest +2.25% increase compared to the last five cycles. Market consensus calls for the Fed to keep raising interest rates at its meetings later this year, although the number and size of the increases remain open questions.

The June meeting represents a potential turning point. Why? Throughout the first half of 2022, investors were concerned the Fed was not being aggressive enough to combat persistent inflation pressures. The thinking was inflation could become entrenched if the Fed raised rates too slow, which could force the Fed to raise interest rates for a longer period and to a higher endpoint. The June meeting marks a clear change in the Fed’s thinking and indicates the central bank will front-load interest rate hikes if necessary to ease inflation pressures.

Investors initially reacted positively to the Fed’s updated guidance. The S&P 500 was down -19.1% from the start of the second quarter through the Fed’s meeting on June 16th. From June 16th through June 24th, the S&P 500 gained almost 6.7%, and Treasury yields declined. Why does this matter? The equity rally and declining Treasury yields suggest investors became slightly more confident the Fed’s aggressive tightening upfront could get inflation under control sooner. The quicker inflation is under control, the sooner the Fed may be able to slow its interest rate hikes and evaluate policy more rationally.

To be fair, there is a potential downside to the Fed’s new tightening approach, and the market appears to be focused on the risk as the second quarter ends. There isn’t a clear understanding of how fast or how much the Fed’s actions will impact the economy. There is a risk the impact from the Fed’s actions is delayed and the Fed keeps raising interest rates, potentially overtightening and slowing economic activity more than expected over the next 12-18 months. It’s a delicate balancing act for the Fed to pull off.

Economic Data Continues to Point to Softer Growth

The latest economic data indicates investors are justified in worrying about the Fed overtightening and tipping the U.S. economy into a recession. The stacked charts in Figure 2 track a range of economic indicators across housing, consumer confidence, the labor market, and consumer spending. The data remains strong relative to historical standards, but it does indicate the U.S. economy is starting to soften.

The top chart tracks the annualized pace of housing starts and building permits. Housing demand soared during the pandemic, but both starts and permits have declined more than -10% on an annualized basis since the end of 2021. The housing market slowdown coincides with a more than +2.50% increase in the 30-year fixed mortgage rate since the end of 2021, suggesting rising mortgage rates are already pressuring housing demand.

The second chart tracks month-over-month retail sales growth across multiple categories during May. It shows consumers spent more at gas stations and grocery stores as gasoline and food prices rose and less on discretionary-related goods, such as autos and auto parts, electronics and appliances, and home furnishings. The data offers a near-term look at how high inflation is impacting and shifting consumer spending.

The third chart tracks the University of Michigan’s Consumer Sentiment Index. The index made a new record low of 50 during June as consumer sentiment continued to deteriorate. Weaker consumer confidence coincides with high inflation and points to a worried U.S. consumer, which is concerning because the consumer accounts for nearly 70% of U.S. economic activity.

Source: MarketDesk, National Association of Realtors, U.S. Census Bureau, University of Michigan, Department of Labor.


The fourth chart tracks weekly initial jobless claims. While initial jobless claims remain low by historical standard, the trend has reversed from 2021’s steady decline as jobless claims drift higher during 2022. Separate data from the Bureau of Labor Statistics shows the U.S. continues to add new jobs each month, but the pace of those job gains has slowed significantly compared to 2021. The +390,000 jobs added during May 2022 were the slowest pace since April 2021. The two measures indicate labor demand is softening, a notable change from the last 12 months when businesses struggled to fill open jobs.

Equity Market Recap – Another Difficult Quarter

The second quarter was another difficult environment for equities. The S&P 500 Index lost -16.1%, only slightly outperforming the Russell 2000 Index’s -17.3% return. It was an especially difficult quarter for Growth stocks as rising interest rates continued to pressure valuations. The Russell 1000 Growth Index traded down -21.1% and underperformed the Russell 1000 Value Index’s -12.3% return. The Nasdaq 100 Index, which investors view as a concentrated Growth index due to its Tech overweight, traded down -22.5% during the second quarter.

U.S. sector returns offer another look at second quarter performance trends. Energy and defensive sectors, including Consumer Staples, Utilities, and Health Care, outperformed as investors rotated to commodities and risk off assets. Growth-style sectors, which include Consumer Discretionary, Communication Services, and Technology, underperformed the broad market as rising interest rates pressured Growth stocks. In the middle, cyclical sectors, including Materials, Industrials, and Financials, performed in line with the S&P 500.

International markets’ lower exposure to expensive Growth stocks allowed them to outperform U.S. markets during the second quarter. The MSCI EAFE Index of developed market stocks returned -13.1% during the quarter, while the MSCI EM Index of emerging market stocks returned -10.4%. Despite international stocks’ outperformance during the second quarter, questions remain about the impact of rising energy prices in Europe and tighter financial conditions in emerging markets (i.e., higher interest rates & lower liquidity).

Bond Market Recap – Rising Treasury Yields Lead to Additional Losses

Bonds traded lower during the second quarter as Treasury yields continued to rise in anticipation of tighter Fed policy. Corporate investment grade bonds produced a -8.4% total return, slightly outperforming the -9.4% total return generated by corporate high yield bonds. While investment grade bonds outperformed in aggregate during the second quarter, the group’s outperformance versus high yield bonds primarily occurred during the second half of June after the Fed’s new aggressive tightening stance caused investors to grow concerned about slower economic activity.

Figure 3 tracks the interest rate spread between corporate high yield bonds and Treasury bonds. The spread is a measure of credit risk, more specifically how much more yield investors demand in order to loan to riskier companies. The chart shows the spread widened significantly from 3.40% at the start of the second quarter to 5.26% on June 28th. The wider spread indicates investors are concerned about borrowers’ ability to make principal and interest payments as financial conditions tighten. Looking back at the past five years, the 5.26% spread is near levels last seen during late 2020, the months following the Covid outbreak, and late 2018, the last time the Fed raised interest rates.

Second Half 2022 Outlook – Unanswered Questions

The outlook is indecisive as financial markets close out a volatile first half of the year. Some investors believe the Fed’s actions will dramatically slow economic growth and push the U.S. economy into a recession. On the opposite end of the spectrum, some investors believe the U.S. economy is strong enough to withstand the Fed’s actions and view the stock market as oversold.
The back and forth is likely to continue until some of the market’s most pressing questions are answered. Key questions include the direction of Federal Reserve policy, inflation’s stickiness, the trajectory of corporate earnings growth and forward earnings estimates, and the path of economic growth. Our team will be monitoring the answers to these questions in coming months to help guide investment portfolio positioning.

The current investing environment requires a long-term outlook. Trend changes are frequent, fast, and driven by fluctuating market headlines, and keeping up with the day-to-day whims of the market can be emotionally taxing. Developing a financial plan and sticking to it are important steps to achieving your financial goals.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results. Investing involves risk, including the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS SHOULD VERIFY ALL CLAIMS AND COMPLETE THEIR OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Stocks & Bonds Both Decline More Than -10% During 2022

The scatter plot below compares annual stock and bond returns since 1989. The dots represent the intersection of the S&P 500’s total return and the Bloomberg U.S. Bond Aggregate’s total return for each calendar year. The analysis highlights the challenging and unusual start to 2022. The ‘YTD 2022’ dot is the only dot in the lower left quadrant with stocks and bonds both declining more than -10% this year. If 2022 ended today, it would mark the S&P 500’s third worst year, and bond’s worst year, since 1989.

How unique is the current market environment? You will notice every year since 1989, except for 2022, is outside of the lower left quadrant. This indicates it is rare for both stocks and bonds to produce negative returns during a calendar year. Why are stocks and bonds declining together? The Federal Reserve is raising interest rates and shrinking its balance sheet by selling bonds, which pressures both stock and bond valuations. On the credit side, most bonds pay a fixed interest rate, which means bond prices must decline to offer a higher interest rate. On the equity side, interest rates represent the cost of money and are used as an input to value company shares. A higher interest rate typically decreases stock prices.

This year’s parallel stock and bond selloff highlights the importance of portfolio diversification not only across asset classes, but within asset classes. When you diversify your portfolio, you aim to invest in different asset classes that may react differently to the same event. The same principle applies within stocks and bonds. On a price return basis, S&P 500 Growth stocks are down -25.5% through May 11th, while S&P 500 Value stocks are only down -8.4%. In the corporate investment grade bond universe, Long-Duration (+10 Years) bonds are down -22.1% through May 11th on a price return basis, while Short-Duration (1-5 Years) bonds are only down -6.1%.

Important Notices & Disclaimer
The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results. Investing involves risk, including the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS SHOULD VERIFY ALL CLAIMS AND COMPLETE THEIR OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Stocks & Bonds Both Selloff During April

Monthly Market Summary

  • The S&P 500 Index produced a -8.8% total return during April, outperforming the Russell 2000 Index’s -9.9% total return.
  • Consumer Staples was the only S&P 500 sector to produce a positive return during April’s market selloff. Energy was the second-best performing sector as the price of crude oil traded around $100 per barrel. In contrast, the ‘Growth-style’ sectors, including Communication Services, Consumer Discretionary, and Technology, each traded more than -10% lower as interest rates soared higher.
  • Corporate investment grade bonds generated a -6.7% total return, underperforming corporate high yield bonds’ -4.2% total return.
  • The MSCI EAFE Index of global developed market stocks returned -6.7% during April, underperforming the MSCI Emerging Market Index’s -6.1% return.

Federal Reserve Policy Remains a Headwind for Equity & Credit Markets

April was another difficult month for both stock and bond markets. The S&P 500 Index traded -8.8% lower during the month, while the Bloomberg Bond U.S. Aggregate Index traded -3.8% lower. Federal Reserve policy remains the driving force as the central bank raises interest rates and prepares to shrink its balance sheet to ease inflation pressures. It is a difficult and delicate balancing act to pull off. Low interest rates and bond purchases stabilized the U.S. economy during the Covid pandemic, but removing the two pandemic-era monetary policies is proving to be enormously disruptive.
Interest rates rose again during April as the 10-year U.S. Treasury yield surged +0.57% to 2.89%. While 0.57% may seem small on an absolute level, it significantly impacts how investors position portfolios. Why? Interest rates represent the cost of money and are used as an input to value company shares. A higher Treasury yield offers investors a higher rate of return. To incentivize investors to own riskier assets, such as stocks, the expected return must increase. Buying an asset, such as a house or stock, at a lower valuation should increase the expected return, which means the theoretical value of the asset should be lower as rates rise. On a conceptual level, this is the messy valuation process the market is currently working through. It is trying to find the correct theoretical fair value of a company’s shares as interest rates rise. This is in addition to dealing with geopolitical tensions, new Covid lockdowns in China, and surging inflation.

What Can You Expect Moving Forward?

There is no easy answer or definitive path forward. This year’s selloff indicates some degree of tighter Federal Reserve policy is already priced into the market – we just do not know how much. In addition, the list of market uncertainties remains long, including corporate earnings quality, economic strength, and the path of Federal Reserve interest rate hikes. Until the market receives clarity on these uncertainties, volatility is likely to remain elevated. The bumpy ride may not be done yet.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.