Navigating an Unprecedented Confluence of Market Variables

October 21, 2022

By Tim Courtney, Chief Investment Officer


Investors have recently found themselves in uncharted waters as a variety of factors have come to a head in today’s environment. Consider the housing market for example. We have discussed numerous times just how distorted housing markets having become upon the Federal Reserve dropping interest rates to near zero. Homebuyers went on a buying spree, resulting in the largest year-over-year increase in housing prices from 2020 to 20211, with an additional 4.6% added in Q1 20222. As inflation rages, keep in mind that housing makes up the single largest component of the Consumer Price Index3, and much of the rent increases over the last year have not yet made their way into the index.

Now, as the Fed rapidly raises interest rates to combat inflation, we are starting to see properties sitting on the market for longer periods of time and prices beginning to plateau. It is clear that interest rates have had a direct impact on house pricing. While it’s probably healthy for housing prices to decrease, there is a risk to consumer confidence if prices plummet. For many Americans, their home is their greatest asset.

A few other market variables are moving strongly. The U.S. dollar is experiencing one of its most sustained periods of growth ever. Over the past 50 years, the U.S. dollar’s purchasing power declined sixfold through the end of 2021.4 However, relative to other currencies, the dollar has jumped 20% in value in 20225, putting pressure on global economies in the UK, EU and Japan.

The Fed does have control over certain things. As we just explained, the Fed’s interest rate decisions directly influenced the prices at which banks were willing to lend to homebuyers. However, certain inflationary pressures are outside of the central bank’s control – such as supply chains resetting and Americans working less.  It’s hard to argue the Fed is responsible for and is able to control so many variables.

The law of unintended consequences is alive and well. Two years ago, the world went on lockdown and the Fed dropped interest rates to zero and unfortunately, we’re still working through the consequences. Supply chains remain broken, markets are lurching back and forth and the labor market is altered, maybe permanently.

This reminds me of the Hippocratic oath taken by all physicians — “First, do no harm.” The Fed and other institutions have the power to make sweeping policy changes, and with power comes responsibility. The Fed and the government made extreme decisions in 2020, and this has forced them into another period of extreme decision-making.

Diversification is the best way to prepare for market uncertainty. Over the next few months and into 2023 we’ll see new variables and uncertainty in markets as is always the case.  Uncertainty is ultimately where returns come from, and the silver lining is that with rates rising, future expected returns are also rising.  The market is absorbing new information and variables, prices are reflecting this, and we are making decisions based on this pricing. Holding stocks diversified across sectors, bonds diversified across maturities, real estate, cash, and others is our best tool in dealing with uncertainty. If you have any questions or concerns, please reach out to your Exencial Advisor.



  1. CNN Business (1/20/22): Home prices in 2021 rose 16.9%, the highest on record
  2. Federal Housing Finance Agency (5/31/22): U.S. House Price Index Report – 2022 Q1
  3. Pew Research Center (1/24/22): As inflation soars, a look at what’s inside the consumer price index
  4. Finbold (3/10/22): ‘Real value’ of one U.S. dollar decreases by 86% in the last 50 years
  5. The Washington Post (9/30/22): Why is the U.S. dollar so strong?



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