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Thoughts From Last Week 3-28-2022

| March 28, 2022
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A message from Edge Investment Solution's Damon Walker:

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Thoughts From Last Week

Prior to the Russian invasion of Ukraine, economic signals were encouraging through February as the Omicron wave retreated and supply chains began to improve. Looking at March flash PMIs, the relaxation of pandemic restrictions helped business activity weather the initial shock from the war. Headline PMIs (Purchasing Managers Index) were surprisingly resilient with growth gaining momentum despite hot inflation and geopolitical uncertainty. The U.S. marched further into expansion at 58.5 (+2.6pt m/m), while Japan saw a meaningful move back towards expansion, jumping 3.5pt m/m to 49.3. Despite closer geographic and economic ties to the conflict, Eurozone and UK growth held its ground at 54.5 and 59.7 respectively.

 

“While growth may be clipped by higher inflation in the near-term, investors should not be dissuaded, but rather stay in the market and take a diversified approach, seeking balance between value vs. growth and international and domestic.”

 

Beneath the strong headline prints, a common theme was surging costs. In March, already elevated input costs were boosted by a barrage of sanctions that impacted commodities and energy markets and further constrained supply chains. In Europe, average input prices saw a new peak of 81.6 (+9.5% m/m), notching their fastest ever monthly ascent. Japan's input costs remained elevated, edging down 0.1pt from their record high last month. In the U.S., input costs rose 1.3pt, but stayed below last December’s peak. While this rise in manufacturing prices will inevitably pass through to consumers and delay peak inflation, it should not completely deteriorate the growth outlook. It is important to remember that the U.S. and Europe are coming into this with very good fundamentals and strong consumer balance sheets. Additionally, several European countries have announced fiscal measures to further offset rising costs. While growth may be clipped by higher inflation in the near-term, investors should not be dissuaded, but rather stay in the market and take a diversified approach, seeking balance between value vs. growth and international vs. domestic.

 

Damon Walker may be reached at 877-299-6237 or damon.walker@mysmartvestorpro.com

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