Economic Outlook May 2022

5/6/2022 8:00:00 AM

Bell Bank News

I don’t golf very much – because I am not very good at it, and I fully admit that I won’t commit the time it takes to get better. That doesn’t stop me from having fun when I do get out for a game. I realized a long time ago I didn’t want to let golf get in the way of a nice walk and good company. Someone once said to me, “Sweeney, you would be a great golfer if you knew what ZIP code your ball was going to land in.” I’m afraid I couldn’t disagree.

Good and bad golfers alike all start on the first tee and finish on the 18th green. Good golfers reach the end using a series of consistent shots. Seventy-two strokes later, they are done. Bad golfers can’t rely on consistency. Instead, they rely on persistence to reach the 18th green. The main difference is that the good golfers completed their round with more elegance.

Investment markets are neither consistent nor elegant, and never have been. To win, investors have to be persistent: stay in the game, take the shots as they lie, and focus on reaching the goal of dropping the putt on the 18th green (or in my case, finding a beverage at the 19th hole).

Just like golfers, investors are faced with a series of frustrations, and getting through them requires that we remain calm and composed. Many golfers think their game will improve if they get a new set of clubs. Most quickly find out those new clubs perform the same way the old ones did. (The pro shop doesn’t care, because they’re happy to have sold you a new set.) The same thing happens in the markets. Investors believe they should sell current positions and reinvest in new ones – only to find their new investments perform mostly like the previous ones. Plus, this new purchase interrupts that persistence we need to develop.

Sticking with golf as a metaphor for the markets, I get the sense today that we are on about the 6th hole – and we could be in for a frustrating game. Expect a few hazards, some surprises and maybe even a good shot or two before the game is complete. Relaxing at the 19th hole and reliving that one good shot? That experience is still 12 holes away.

The combination of inflation, labor, supply, monetary policy, fiscal policy, war, pandemic, growth ambiguity and elevated stock multiples creates an unstable cocktail of ingredients. Sure, there is always some degree of uncertainty in the markets – but this recipe is more complex. Eventually, we will get through it. In the absence of consistency and elegance in our game, look to persistence as the best way to reach the goal!

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