Equity markets sold-off on Friday, following a disappointing Consumer Price Index (CPI) reading that showed headline inflation picked up last month, and that selloff continued through Monday. CPI was reported at 8.6% year-over-year, higher than last month’s 8.3% increase, and ahead of expectations. Core CPI, which excludes food and energy, came in slightly ahead of estimates at 6.0%, but that was down from 6.2% in April.

The elevated inflation readings continue to stoke fears that the Federal Reserve will need to continue its aggressive rate hiking plan through most of 2022. Some had hoped that if the inflation numbers began slowing that the Fed might ease its pace, especially in the face of slowing GDP which likely peaked late last year. But with such strong inflation readings, the Fed will need to continue to raise rates to combat price increases.

The steady increase in energy costs, including oil and natural gas, are only making the Fed’s job more difficult. Oil, which hit $120 a barrel on Friday, continues to lead to higher gas prices which are especially problematic for consumers. Not only does it keep inflation readings elevated, it saps discretionary spending as consumers are forced to cut spending in other areas to fill their gas tanks.

For consumers and investors, it’s been a tough start to the year, as just about every equity and bond asset class has experienced negative returns, while costs of goods and services have risen. Some asset classes, like value and dividend payers, or very short-term bonds, have held up better than others, but overall, it’s been challenging to put together a portfolio that’s not in the red. The combination of rising prices and declining asset values is a combination likely to try the patience of investors before an eventual resolution.

So, what’s an investor to do? In times like these it’s tempting to wonder whether you should make large scale portfolio changes or sell out entirely. Such strategies have rarely rewarded investors, as you can see in the chart below. Our recommendation is to remain patient and focus on your long-term investment plan. Equity investors are rewarded with higher long-run returns precisely because they must endure these shorter-term periods of volatility.

Source: Standard & Poor’s, Bloomberg, Federal Housing and Finance Agency (FHFA), Bureau of Labor Statistic (BLS), U.S. Treasury, New York Mercantile Exchange (NYM). Past performance is no guarantee of future results.

In addition, there are opportunities in every type of market, and even simple things like rebalancing your portfolio can have significant long-term benefits. As strategic long-term investors, our team is continually evaluating opportunities for our clients and monitoring our allocations and managers in this difficult market environment to ensure the risk and return profile is appropriate for our investors. Most of all, we welcome the opportunity to talk with our clients who may be concerned about their plan and help to reduce the worry by verifying if their financial plan is still on track.

Data as of 6/13/2022.