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When I walk my dog, I’m struck by how obsessive he is about his actions. He will spend, what seems to me, like a ridiculous amount of time searching for the perfect spot to relieve himself—re-positioning himself countless times as if the future of the free world depends upon the outcome. For him, this process is vital to is existence—to me, it is a waste of time. The animal brain is dominated by what it chooses to focus on.

What a difference a year makes. But I don’t need to tell you this. Anyone who’s gone through the last few years knows this to be true. Since, 2018 we’ve seen our share of whipsaw action in financial markets—from Christmas Eve stock market collapse in 2018, to Covid crash in 2020 followed by the Covid market explosion in the second half of 2020, to the meme stock insanity of 2021, and finally the bear market of 2022.

Last week we closed the door on the first half of 2022, and from a market perspective the end couldn’t come soon enough. Here is a rundown of the performance of major assets:

S&P 500                                -19.45%

Among stock market analysts, opinion is becoming nearly unanimous that the market has not yet found a bottom. Since the S&P 500 began to decline at the beginning of the year we have seen four substantial bounces, averaging 9%, the most recent one being the rally from 5/12-6/2. Each of these bounces have resulted in the S&P 500 revisiting its prior low or making new lows. This price action is frequently referred to as a bear market rally.

US equity indices, as of 10am, seem nearly certain to log another down week. Absent a dramatic turnaround this afternoon, this down week will mark the 7^th consecutive losing week for the large-cap index. Year-to-date the S&P 500 now sits nearly 18.5% below its all-time closing high set on January 3^rd of this year. The tech-heavy Nasdaq 100 and the small-cap Russell 2000 are both down roughly 30% from their all-time highs.

We witnessed another choppy week in the stock market. On Wednesday the Fed announced that it was raising the Federal Funds rate by 0.50%, but further announced that it was not considering future hikes of 0.75% or 1.0%. It did, however, say that it foresees the need to raise another 50 basis points at each of its next two meetings. The market’s immediate response to this news was to send the S&P 500 up by over 3% Wednesday afternoon.

2022 has gotten off to a rough start. Stocks began to buckle under the prospect of the Fed’s response to runaway inflation even before Russian forces invaded Ukraine. Putin’s decision to invade Ukraine not only exacerbated the prospects for lasting inflation, but also the prospect for a continually destabilized geo-political world.

At risk of sounding like a broken record, the monthly CPI report came out this week and showed another four-decade high inflation reading. As much as the President would like to lay the blame at the feet of Russia’s invasion into the Ukraine for our current inflation crisis, the dye was cast long before military action began. To be fair, in my opinion the dye was cast even before the 2020 election.

Often times when I’m writing these pieces, I reflect on the letters I’ve written in the past. Notably, when the stock market is riding a wave of optimism and euphoria is the mood du jour, I remember the notes written during the bad times. A few weeks back I was recalling the notes written in March of 2020. Fear gripped not just the markets but pervaded every aspect of our lives.

This week’s headline event was definitely the CPI report that came out yesterday. The expectations were for an inflation reading of 7.3%, with many hoping that the number would actually surprise to the downside. Instead, the number came in higher than expected at 7.5%. The major US stock market indices didn’t like that one bit. The S&P 500 fell over 1.7%, while the Nasdaq 100 dropped 2.2% on the day of the report.