Market Outlook

Q1, 2022: Candyland

Growth, Inflation & Policy


  • Growth is unquestionably decelerating, while inflation prints are becoming increasingly important. Should we see inflation accelerating from here, expect fireworks. If inflation however starts to decelerate, it could be a decent year for risk assets.
  • While we are watching inflation as the primary driver of outcomes this year, we are not attempting to predict inflation. On the one hand, fiscal and monetary policy will be dramatically lower in 2022 which should serve to reduce some pressure. However, the economy is still undergoing significant change and the prevalence of Omicron is not helping to relieve global supply chain issues. The degree to which inflation persists at current levels will likely determine if the Federal Reserve can simply take its foot off the gas like it is currently signaling, or if they need to start pumping on the brake.


  • Initially, during the early quarters of Covid, consumers were in an abnormally strong financial position given government stimulus, but most of this disposable income came from inorganic sources—transfer payments. The gap between disposable income and income ex-government transfers got as high as $5 trillion during the recession, whereas the normal trend is around $2 trillion.
  • The slowdown in disposable income is starting to show up in credit card usage and will continue if there is any economic weakness.


  • Inflation does appear to be impacting the consumer, the most recent University of Michigan Consumer Sentiment survey had a reading of 67 which is lower than the 72 reading in April of 2020, the lowest during the depths of the pandemic.
  • There are certainly several factors for the low reading and one of those core reasons is inflation. The December reading of the Consumer Price Index jumped to 7.1% on a year-over-year basis, the highest since 1982.
  • For the better part of 2021, meaning April on, real disposable income has been flat or negative on a year-over-year basis. Now some of that can be attributed to the lofty levels of growth, from stimulus, but the fact that this metric has been a zero or negative going on eight months is weighing on the consumer.
  • The Citi Inflation Surprise Index has spiked to record levels with all geographies reporting inflation figures above expectation for the first time on record.

For additional market insights, download our complete market outlook report.

This material is provided to advisors by Mount Yale Investment Advisors, LLC and contains market commentary from third-party sources it believes to be reliable. However, Mount Yale has not independently verified or otherwise investigated such information and makes no guarantee as to its accuracy or completeness.  In the event any of the assumptions used herein prove not to be true, results may vary substantially. All investments entail risks. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested indirectly.  The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor.  It is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities.

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