On this episode of KayneCast, host Jordan Greenhouse, Managing Director of Kanye Anderson Rudnick, discusses the Q1 2022 stock market review with Chris Armbruster, Portfolio Manager and Senior Research Analyst for the KAR Mid Cap Sustainable Growth Portfolio. The two explore the impact current economic drivers will have on the larger 2022 stock market outlook.
War and Inflation Cause Market Volatility
Volatility in the first quarter of 2022 lead to overall flat to negative returns across most equity classes. The ongoing war between Russia and Ukraine disrupted production of key commodities like oil, natural gas, wheat, aluminum, iron, nickel, and lithium, causing prices in those sectors to skyrocket and raising fears of a European recession.
High global inflation rates have also impacted equity classes. In response, the US Fed has become increasingly hawkish, and is expected to raise interest rates several times this year. As Armbruster notes, “By slowing the economy, higher rates should, in theory, tamp down inflation but also can act as a headwind to overall growth.”
Q1 2022 Stock Market Performance Review
Armbruster begins his stock market performance review by noting that “down markets are characterized by slowing global growth and tame inflation that clears the way for the Federal Reserve to enact stimulative monetary policy to reverse the course of the economy. In these instances, cyclical, capital intensive companies are the first to feel the sting of the downdraft, which typically winds up having an outsized impact on their businesses.”
In addition, the Ukraine war has led to a disruption of many key commodities that cascaded through the supply chain, impacting production, and eating into the margins of high-quality businesses. Armbruster comments that “A period like today, where we see global growth slowing yet the 52-week high list is littered with energy and resources names is highly unusual.”
The 2022 Stock Market Outlook
Moving into Q2 and beyond, Armbruster notes that the “new economy” of digital infrastructure software and automation has been aggressively funded by zealous investors, and companies within the new economy must be carefully monitored for signs of over-spending in technology solutions, over-hiring, or over-compensation of employees with artificially inflated equity.
He concludes his stock market commentary by noting “While public valuations have come in quite a bit, there are signs that private company valuations (including those of hundreds of still-private multi-billion-dollar companies) need to dramatically re-rate.”
Armbruster does not think a “new economy” implosion is likely but acknowledges the potential and the need to remain laser-focused on the fundamentals of KAR holdings for signs of longer-term stresses.
Mid Cap Sustainable Growth Contributors and Detractors
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Mid Cap Sustainable Growth strategy for Q1 2022.
Learn more about the Kayne Anderson Rudnick Mid Cap Sustainable Growth Portfolio today.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein.