Yesterday was another bad down day in the markets. Not only that, but other assets are getting hit as well, with bitcoin getting hit even more than the general financial markets. As worries rise, when will the bleeding stop? 

Yesterday saw another significant drop in stock markets, more than reversing the bounce we saw the prior day. Up, down, up, down, but largely down—it looks like the market is headed down indefinitely.

One of the key things I do as an analyst is figure out what can be safely ignored. In today’s environment, with so many “different this time” events going on—the pandemic, the Ukraine war, and the 40-year high in inflation—what can we safely disregard? Finding the right answer is not as simple as it was a couple of years ago.

April was a hard month for the markets. For the month, U.S. markets were down between 5 percent for the Dow and 14 percent for the Nasdaq, and international markets fell between 5 percent and 7 percent. Fixed income was also down for the month—there was truly nowhere to hide.

Chalk another point up on the board for the importance of context. Yesterday’s economic data release showed that the economy actually shrank in the last quarter, down by 1.4 percent at an annual rate. This result was down from 6.9 percent in the prior quarter and well below the expected 1 percent growth rate.

This will be the last post on the 100K project because I finished it a couple of days ago, 364 days after I started. For those coming in fresh, the 100K project was a decision I made, 364 days ago, to start tracking my daily calorie balance—consumed less burned—over time. The goal was to get a net loss of 100,000 calories down, over an indefinite time period. You could think of it as taking 100,000 calories out of the fat bank.

Following up on yesterday’s post about the recent market declines, I thought it would make sense to talk not just about the declines themselves (where they came from and where they are going), but also about what the declines mean from a larger portfolio perspective. To take the emotion out of it for a bit, and see what the larger picture can tell us.

The economy seems to be doing well, with job growth still at high levels, consumer spending still healthy, and businesses continuing to invest. But the stock market—which is supposedly a barometer of that economy—is acting very differently. The market has fallen significantly from its peak at the start of the year and, more recently, has taken a sharper drop. What’s going on here, and will it continue?

Earlier this week, my colleague Rob Swanke wrote about the relevance of the 60/40 portfolio in light of the current market environment. He asked whether this investment model, which seeks to balance the growth potential of equities with the volatility mitigation potential of fixed income, should be abandoned. Spoiler alert! Rob suggests we need to look forward, not backward, when making portfolio decisions, even though market conditions have changed. While short-term adjustments may help boost performance, the 60/40 portfolio can still be an attractive choice for the moderately aggressive investor.

Inflation has grabbed headlines for the better part of a year now, as the Covid-19 response led to increased demand and supply constraints. That said, short-term inflation expectations have changed dramatically in recent months. In April 2021, inflation expectations for 2022 remained relatively subdued, with the International Monetary Fund (IMF) calling for 1.6 percent consumer price inflation in 2021 and 1.7 percent in 2022 for advanced economies. In October 2021, these numbers had moved up to 2.8 percent and 2.3 percent, respectively. Since then, inflation in the U.S., euro area, and other advanced economies has continued to pick up, with the IMF’s most recent report from this month showing inflation for advanced economies at 5.7 percent in 2022 and 2.5 percent in 2023.

What has led to changes in this global inflation outlook? And what conditions are contributing to the IMF’s lowered inflation expectations going into 2023 and beyond?