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Adjusting to Monetary Tightening

Market optimism continues to evaporate as headline after headline continues to roil investing sentiment. While there have been some relief rallies in recent days, or what some might call a dead cat bounce, those have done little to affect the overall equity markets which have turned sour since the start of the year. In its biggest one-day loss in two years, the benchmark S&P 500 Index fell 3.6% on Thursday, the Dow lost 1,063 points, and the tech-heavy Nasdaq closed the session down 5%.First it was inflation and high oil prices, followed by the war in Ukraine. Then it was COVID lockdowns in China that triggered more fears about the supply chain. Cautious guidance from earnings season didn't help the situation, while Powell's comments of "additional 50 basis point increases at the next couple of meetings" are still reverberating through the investing community. Yesterday's sharp selloff saw the CBOE Volatility Index, a fear gauge known as the VIX, advance nearly 8 points to as high as 33, far above its long-term median of 17.Markets were temporarily supported by comments from Jerome Powell which revealed that the Federal Reserve wasn't considering even bigger increases like 75 bps hikes (a move it hasn't done since 1994), but clearly, investors had second thoughts about the so-called 'dovish hike' from the Fed.  The flight to safety also did not materialize this time around (except for the dollar perhaps), with everything from gold to U.S. Treasuries joining the selloff on Wall Street. Before you begin wishing you could pull a Rip Van Winkle and sleep for the next twenty years, there remain signs of hope.  The Labor Department reported this morning that 428K jobs were added in April, indicating the labor market remains robust even as markets are dealing with the Fed’s tightening cycle.  Furthermore, job growth was widespread, led by gains in leisure and hospitality, manufacturing, and transportation and warehousing.  The flip side to this is that productivity in the first quarter dropped by 7.5%.  This marks the biggest drop in quarterly productivity since Q3 1947 when the gauge fell 11.7%.  Output fell 2.4% while hours worked increased 5.5%.  We are still some months away from having a better grasp on the inflation picture and how well the interest rate hikes are working to slow the economy.  The next couple of months will be critical in determining whether the Fed can manage a soft landing. In closing, a co-worker brought to my attention that a record was broken for the longest running  tenure at a company.  Walter Orthman, a centenarian and Brazilian salesman, has worked at the same company for 84 years.  He started at Renaux SA as a shipping assistant a year before the outbreak of World War Two, when he was just 15 years old.  As times have changed, it seems unlikely that this record will be broken, especially by someone in the United States which brings me to the moral of the story.  While Mr. Orthman may truly love what he does, and can’t dream of doing anything else but work, his is the exception not the rule.  If you haven’t taken the time to organize your goals, hopes, and desires now would be a good time to do some planning.  Harvest offers retirement planning, among other planning services.  It is never too late (or too early) to start the process of laying the groundwork for a successful retirement, however you may define it.  Let us help put together a plan for you.  These are unsettling times, but they don’t have to be.  A little planning can go a long way to bringing peace of mind.  

Bruce J. Mason, MBA