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Investors and advisors anxiously await the Capital Markets Outlook each year to help guide investment strategies for the next five years. We start with looking at the economic landscape and where we are in the business cycle and how markets are expected to behave. This year started out with significant volatility, the second most volatile January on record. Therefore, putting on the five-year lens is very helpful to make sure we are not making long-term decisions based on short-term reactions.

Some of the data seem obvious at this point: Concerns over Russia flexing their military power; more variants of COVID-19 spreading; China’s productivity slowing due to continued lockdowns; and the threat-turned-reality of higher-than-expected inflation.

Inflation has not exceeded 2.5% percent in the past 20 years but jumped up to 7% in December.¹ Investors who did not experience the 1970s and 1980s and live during high inflation, may have a very different viewpoint of investing during these times. Six out of 10 working Americans have not experienced inflation over 4%.² This may reduce the amount of volatility younger investors can handle compared to their older more-experienced parents.

Federal Reserve Chairman Powell stated the Fed would begin raising rates to help curb inflation that is running hotter than expected. Many economists expect inflation to come down by year-end to a more reasonable 3% range. Bill Greiner, our chief economist, points out that this is still up from 2.4% just three months ago.

We would expect to see economic growth slow down later this year, given the economic backdrop. There remains concern over higher-than-expected inflation (cooling by year end), continued issues with COVID-19, supply chain shortages, higher wages, rents, and oil prices. Add in a mid-term election, and there is no wonder the stock market is having trouble finding direction.

Our Chief Investment Strategist Jeff Krumpelman, CFA, stated in the Crystal Ball webinar that 2022 is not likely to be as bullish as the last two years, but still expecting growth, perhaps in single-digit returns. He would expect a correction, given the fact that we have had three consecutive years of double-digit returns. Corporate earnings are expected to be more “normal” such as the 4.9% year over year increases we have seen so far this earnings season, rather than the almost 11% average from prior years.

The consensus is a more normal market cycle and more reasonable valuations. Investors should look for opportunities to trim profits and rebalance to keep a solid strategy during market volatility. It is important to stay properly diversified across asset classes that are appropriate for your time frame.

Investors unfamiliar with how to construct a portfolio to hedge against inflation should meet with a fiduciary advisor to help them build a road map for the future.

1. Bureau of Economic Analysis, 2. The Washington Post

Patricia Kummer has been a certified financial planner professional and a fiduciary for over 35 years and is Managing Director for Mariner Wealth Advisors, an SEC Registered Investment Adviser.