The most recent inflation data came in this morning, with the Consumer Price Index (CPI) up sharply again. The headline index was up by 1.2 percent for the month and by 8.5 percent for the year (a 40-year high). On the face of it, inflation is approaching a crisis. What if it keeps on rising?

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

Markets rebounded in March, but it was not enough to offset earlier losses in January and February. The S&P 500 gained 3.71 percent in March, while the Dow Jones Industrial Average (DJIA) rose by 2.49 percent and the Nasdaq Composite increased by 3.48 percent. But the selloffs in January and February caused all three indices to end the quarter in negative territory. Despite the March gains, the S&P 500 lost 4.60 percent for the quarter, while the DJIA dropped 4.10 percent and the technology-heavy Nasdaq dropped 8.95 percent. The market decline to start the year is a reminder that risks remain that should be monitored going forward.

The most recent news bomb taking markets down was the release of the minutes from last month’s meeting of the Fed. The Fed raised rates, as was amply reported. In the following press conference, Fed Chair Jerome Powell was widely reported to be more hawkish, which is to say, likely to raise rates further. But what we did not know until yesterday was just how emphatic the decision was for the entire committee.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

We saw a bit of a bounce in stock markets in March, but not enough to recover from a terrible first quarter. U.S. markets were up between 2 percent and 4 percent for the month, and developed markets managed to squeak out a small gain, but everything else was down from 1 percent to 3 percent. For the quarter, markets were down between 3 percent and 8 percent, with blue-chip companies doing best and tech stocks getting hit the hardest.

We saw a bounce in stock markets for March, but everything was down between 3 percent and 8 percent for the first quarter. The reasons for this were twofold. First, with inflation at a 40-year high, the Fed was forced to raise interest rates. Second, the Russian invasion of Ukraine unsettled markets. Still, there were some positives. Hiring was strong, and business confidence and investment were healthy.

For the past couple of weeks, we’ve been talking about two things: the war in Ukraine (and its effects) and inflation and the Fed. These have very much been the hot topics, and deservedly so. But with a lull in the news on both, it’s time to check back in on Covid, which has not gone away.

Last week, we looked at what inflation actually is—and where it is coming from. As we noted then, three categories (housing, transportation, and food and beverages) account for three-quarters of all spending. So, if we talk about inflation, this is really what we are talking about. As we also noted, those categories have grown faster since the start of 2021, especially transportation. But none of that tells us what will happen over the next year or so. To determine that, we need to take a closer look.

We’ve talked a lot about higher interest rates and what they mean for the market. But we haven’t really looked at what is driving those higher interest rates, which is inflation. Of course, you see the stats and the headlines, but as usual, there is very little context or explanation as to what those numbers mean. Today, I want to take a look at what inflation actually is.

One of the outcomes from the recent Fed meeting, where the Fed decided to raise rates for the first time in years, was a clear plan to continue to raise rates over the next year. Fed Chair Jerome Powell added fuel to the fire yesterday when he said that the Fed was willing to raise rates even faster than the meeting notes suggested. The Fed is now clearly focused on bringing inflation back down, even if it means slowing down the economy.