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Market Volatility: Earnings Reports and Inflation Worries Thumbnail

Market Volatility: Earnings Reports and Inflation Worries

Insurance Planning Legacy Planning Market Vizion Weekly Note

A Special Commentary by WeapthPlan's Investment Management Team 

Recently we have been discussing higher market volatility as market participants attempt to understand the inflationary threat (its duration and magnitude) and the Fed’s response. Uncertainty about these things is really at the heart of recently higher market volatility. As a principle: uncertainty leads to volatility.

 The chart below plots the major Equity Indices for the week. In this chart, one can observe the volatility we are referring to. Since the beginning of the year markets have exhibited such volatility.

To wit, last week we had mixed earnings coming from tech giants Meta Platforms (AKA Facebook) and Amazon. Please see the chart below. Meta’s stock declined 23% in response to a negative earnings outlook on Thursday, taking other stocks with it. Then, the next day we, had a positive earnings announcement from Amazon, whose stock advanced 13.5%. You can see the volatility of these higher valuation tech stocks in this environment.

 In addition to stock-specific information, markets are also digesting macro-economic data. Last week we had a blowout Jobs report, with the US adding 467,000 new jobs in the month, blowing away the consensus expectation for 180,000. This number sets up a heightened sense of importance for the CPI report, which comes out Thursday of this week. Inflation will be the primary concern this week as a host of companies including Coca-Cola, Disney, and Pfizer report earnings.

 Expect more of the same this week as we experienced last week. We have described this process as the market finding a new equilibrium as higher rates work their way into the economy. High valuation stocks with high growth expectations will continue to be vulnerable to sell-offs at the slightest hint of decelerating or weakening growth.

It is against this backdrop that the WealthPlan team continues to build portfolios designed to withstand such uncertainty for long-term growth and protection of capital.