Key areas to watch and investment planning implications by Larry Swedroe
Main Takeaway: While there’s always uncertainty in the outlook
for the economy and financial markets, a confluence of events
has pushed the level of uncertainty to high levels, namely the
Federal Reserve’s battle against inflation, Russia’s invasion of
Ukraine and ongoing supply chain struggles. The markets have
already priced in these risks, explaining why stocks and bonds
have performed poorly this year.
Top Risks: We believe the two biggest risks to the economy
are the war in Ukraine dragging on and inflation running hotter
than markets expect. In addition, the effects of reduced fiscal
stimulus, significantly tighter monetary policy and the stronger
U.S. dollar are likely to result in slower economic growth, with
in our opinion, the chance of recession in the next 12 months
increasing to 30%-50%.
Sources Of Stability: Although GDP growth is expected to
slow, the unemployment rate should stay low through 2023 at
around 3.6%. Monetary policy is still loose, with negative real
rates of interest; there is still some fiscal stimulus; and both
corporate and consumer balance sheets remain strong.