This week, we have been talking about interest rates and the Fed—and what that all likely means for our investments going forward. But behind those conversations is another more fundamental question: what should interest rates be? If there is some natural rate where interest rates should be, that could give us some guidance as to where they will end up. That is really what we should be looking for as we plan our portfolios over the long term.

One of the things we know, mathematically, is that if interest rates go up, stocks should go down. If you consider a stock price as the discounted present value of a future earnings stream, then a higher discount rate results in a lower present value. There is no nuance or context; it is just math. So when rates are raised—and prospects for future raises are reinforced—and yet stocks move up, there is clearly something else going on.

With the regular meeting of the Fed this week, there was a great deal of speculation about what it would do. As expected, the Fed pulled the trigger on a 25 bp interest rate hike. But what will happen next? What I expect from the statement, as well as the press conference, is that there will be similar hikes at every meeting for the rest of the year (data permitting) and that quantitative easing bond purchases will be wound down by the end of the year. In other words, I expect the Fed to follow up the rate hike with signals that it will continue normalizing policy, and I don’t expect that to be derailed by the Ukraine war.

Today’s post is going to be a short one because there is simply too much uncertainty right now to make a principled argument about pretty much anything. Interest rates have bounced back up to levels above 2 percent. Will they stay there? Depends on what happens in Ukraine. Stocks are staying somewhat below, but not far below, where they were when the invasion started. Will they go up or down? Pretty much depends on what happens in Ukraine. Oil prices, consumer confidence, inflation, and so forth are all pretty much the same story. We are all waiting on events.

Several important economic updates were released last week, with a focus on international trade, consumer inflation, and consumer sentiment. The February consumer inflation report drew the most market attention, as it showed that inflationary pressure continued to rise. This will be a very busy week of updates with scheduled reports that will cover producer inflation, retail sales, the housing market, industrial production, and the March Fed meeting.

Have you experienced sticker shock at the pump recently? Chances are, you probably noticed a price hike the last time you topped off your tank. According to the Energy Information Administration, the price of conventional gasoline has risen 57 percent in the past year, and consumers are feeling the squeeze.

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!

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!

After a terrible January for the markets, February continued the decline, with fears about inflation and Fed rate increases dominating the start of the month, only to be superseded by the Russian invasion of Ukraine. Although the Covid-19 news continued to improve, by the end of the month, markets had moved on from medical risks to economic and geopolitical fears. Looking forward, those are the risks that are likely to dominate, as Covid-19, while still with us, has left both the headlines and, apparently, the markets.

Several important economic updates were released last week, with a focus on February’s business confidence and job reports. The job report showed that more jobs were added than expected during the month, which drove the unemployment rate to a new pandemic-era low. This will be another busy week of updates relating to international trade, consumer inflation, and consumer sentiment.