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Kristal Insights - September 2022

Kristal Insights - September 2022

We continue to operate in a difficult environment of opposing forces that keep asset prices in a volatile state across a wide range of outcomes. The month of August has been under the influence of revived hawkishness by central banks across the globe, which sent equity prices lower and bond yields higher. The start of the rout was triggered by comments from Fed Chair Powell at the Jackson Hole conference, reiterating the Fed’s resolve to fight inflation, and preparing the market for interest rates higher and longer than what many market participants anticipated. In the first week of September, the ECB followed through, delivering their biggest rate increase in the history of the common currency with a 0.75% increase of their benchmark rates.

We are testing critical support levels in major indices, which will give us an indication if the recent emerging bear market rally can continue, or if we might be heading towards new lows for the year. 3,900 seems to be the line in the sand for the S&P 500 index here. There are important upcoming data points in the coming days, that will certainly provide some impulse into either direction ahead of the FOMC meeting from 20th-21st September.

Quantitative Tightening and the uncertain outlook with regard to peak inflation and a slowdown in growth could continue to weigh on asset prices. We see some very tentative signs that at least the growth trajectory for inflation may have slowed, but key data releases for US CPI (13. September) and the more closely followed by the Fed Personal Consumption Expenditure Index (PCE, 30. Sept.) will give us more indications if we are there yet.

In the meantime, be prepared for more volatility ahead in stock prices and rates in either direction. As mentioned in previous months' commentaries, Investors may want to consider short-duration fixed-income assets, as rising rates have raised the relative attractiveness of money market funds and bonds. Diversification remains at the forefront of a successful investment strategy. We have gone through a couple of major sentiment swings in a very short period of time recently, and a well-diversified portfolio can help to avoid panic-induced selling.

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By

Kristal Advisors

September 17, 2022

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