The “Bull”

While consumers are aware of the broad rise of inflation in 2022, some high-profile Wall Street “experts” predicted that inflation rates would substantially decrease from February, through the end of the year. A bold claim. It was believed that interest rate hikes may slow while the consumer price index (CPI)¹, and personal consumption expenditures (PCE)², would level off by December. In one instance of over-confident prognostication, two renown “stock bulls,” Marko Kolanovic and John Stoltzfuls, predicted that the Federal Reserve would slowly raise interest rates³.This in turn, would reverse upward inflation trends. Kolanovic believed this would lead to a “broad rally” of the S&P 500 in 2022, and “pinned it” at 5,050 points by year end¹.

Another well-known Wall Street professional, Rick Rieder, BlackRock CIO for Global Fixed Income, had a prediction of his own concerning the year’s final percentage figure of inflation. On February 9 of 2022, despite rejecting the idea of selecting a single number, Mr. Rieder selected a single number…of “around 3%.”⁴ He claimed that inflation would not be at “the levels we’re seeing today.”

The Reality
At the end of 2021, the Federal Reserve Chair, Jerome H. Powell, stated that, “No one knows with any certainty where the economy will be a year or more from now.” Over the course of 2022, the Federal Reserve fell behind on controlling consumer prices, then, rushed to hike interest rates at the fastest pace in decades^5. This was a far cry from Kolanovic’s and Stoltzful’s anticipated interest rate slow-down. As for the S&P 500 rally, that was expected in the wake of leveled rate hikes, it fell short…by more than 1,000 points¹.

BlackRock’s Rick Rieder also proved to be significantly off the mark predicting 2022’s final inflation rate. To the shock of almost no one who bought goods and services in 2022, inflation went up…to 6.5%^6. That’s more than double the original projection of “around 3.0%” offered by Mr. Rieder.

The Point

The year 2022 saw the global economy’s highest inflation rates in approximately 40 years³. Fed Chair Jerome Powell spent most of that time consistently making interest-rate hikes in the hopes of reigning in prices. The overall effectiveness of his strategy is still being debated. Most of the chief Wall Street prognosticators were far off base when they suggested that inflation would “level off,” to more consumer-friendly levels, by the end of the year.

Regardless of their professional credentials, experience, or position in the industry, no individual can accurately predict how markets will behave over the course of the year. The global economy is far too complex a machine, and too easily affected by global market events to decipher infallibly. So instead of worrying about predicted results and making changes to your portfolio, we recommend that you stay the course and stick to your long-term financial plan.

Ignore the “bull”. Trust the evidence.

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[1] The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Consumer Price Index. U.S. Bureau of Labor Statistics. URL: https://www.bls.gov/cpi/

[2] Personal Consumption Expenditures (PCE) includes a measure of consumer spending on goods and services among households in the U.S. The PCE is used as a mechanism to gauge how much earned income of households is being spent on current consumption for various goods and services. Source: Personal Consumption Expenditures. U.S. Bureau of Labor Statistics. URL: https://www.bls.gov/cex/cecomparison/pce_profile.htm

[3] Xie, Ye, Mackenzie, Michael, Graffeo, Emily. Wall Street’s Top Stars Got Blindsided by 2022 Market Collapse. BNN Bloomberg. December 28, 2022. URL: https://www.bnnbloomberg.ca/wall-street-s-top-stars-got-blindsided-by-2022-market-collapse-1.1864039

[4] Inflation will remain sticky high for a while but should ease this year: BlackRock's Rick Rieder. Feb 9, 2022. CNBC Television. Video URL: https://youtu.be/lGeNp5eaIPc

[5] Siegel, Rachel. 2022 shattered economic forecasts. Can the Fed get 2023 right? December 12, 2022. URL: https://www.washingtonpost.com/business/2022/12/12/fed-projections-economy/

[6] Inflation eases to 6.5 percent according to December report. Jan 12, 2023. NBC News. Video URL: https://youtu.be/DbbVhgNpFuc

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