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Eric Freedman, chief investment officer for U.S. Bank’s Asset Management Group, shares strategies for the remainder of 2022 after a brutal start of the year for global financial markets.

As the Chief Investment Officer for U.S. Bank’s Asset Management Group, Eric Freedman helps people understand what’s going on across global financial markets. Even as a child, he was drawn to capital markets, and that – combined with his father’s example of helping people through medicine – drove Freedman to give back by helping people manage their investments.

The first half of 2022 has been a wild ride. What may lie ahead for the rest of the year? We sat down with Freedman to get his take.

What are you keeping your eye on going into the second half of the year?

We’re watching the level of interest rates that we’ll see from the U.S. central bank, the Federal Reserve or “Fed,” which will be the biggest driver of markets. Following that, we’re watching inflation levels. Sometimes markets compare the rate of inflation year over year, but right now, because things have been changing so quickly, it’s more about the changes month over month. We’re also watching the state of corporate and consumer activity – what companies are doing, and how durable consumer demand is. Right now, lots of people are traveling by car and by air, and that willingness to spend money is extremely important for corporate earnings. We’ve seen evidence that consumers did save a lot during the pandemic, but that’s already started to drop off. Consumers’ personal savings rates at the end of April were the lowest they’ve been since the pandemic started. Will consumers extend beyond their means? It’s an open question, and a challenge for the economy.

Six major market indices saw a negative return in the first half of 2022. What does that mean, and should I be worried?

Since the launch of the MSCI Emerging Markets Index (a selection of stocks that track the financial performance of key companies) in 1988, six major market indices have never all had a simultaneously negative return during the first six months of the year – until now. In addition, the S&P 500 plummeted 20.6% in the first six months of this year – the worst first-half performance of any year since 1970. A confluence of unique events has pressured global stocks and bonds, including the Fed’s pivot to fight inflation by raising interest rates and the Russia-Ukraine conflict.  We have seen periods where stocks and bonds are both down at the same time, but it usually doesn’t last long. The question is, when will things start to look up?  We think more clarity from the Fed on their interest plans and evidence that consumers and businesses will continue to spend, albeit incrementally, would be well-received by markets.  

How can I protect my retirement savings from inflation?

There are steps you can take to mitigate your exposure. Within a normal interest-rate environment, stocks offer some protection against inflation. But right now, the Fed may move abruptly, which may be more of a penalty for stocks. That’s why we’re recommending shorter-term bonds and real assets, which tend to perform well over time.

Where should I be investing my money now and why?

Within the stock market, we tend to favor domestic stocks vs. international. The exception is emerging markets, which may perform well as China reopens. We also are recommending that investors look at shorter-duration, high-quality bonds. We don’t recommend getting too aggressive on longer-duration bonds because things are so uncertain right now. We’re also recommending real assets: utilities, infrastructure and energy. Infrastructure stocks (transportation, data centers, cell towers) benefit from the reopening of the economy. Utilities adjust their prices with changes in usage and aren’t that sensitive to the economy (unlike things like retail and airlines, which don’t do as well during economic slowdowns).

My investments have lost money the past 6 months. Can they recover? Should I be changing my investments?

For most investors, time can be on your side. If you won’t need the money in your investments for some time (like in a 401k,) we wouldn’t recommend making massive changes. Once you determine your time horizon (how long it will be before you retire) your risk tolerance and an investment strategy (a target-date fund, for example), stick with it.

You can also consider diversifying your portfolio and adding some real assets, like infrastructure, or investing in Treasury inflation-protected securities (TIPS), which are issued by the U.S. government. Real Estate Investment Trusts (REITs) are not tied directly to interest rates and typically generate returns to investors in the form of rental income.

What keeps you up at night?

My teenage son’s grocery bill. As a bank, our biggest concern is that markets and the Fed will be out of sync. The Fed may be more aggressive in raising interest rates than markets expect. If the Federal Reserve remains aggressive in raising interest rates and the economy slows down, we could see markets trade lower despite this year’s challenges so far.