The market has rallied during the month, as the endless battle between fear and greed continues.

On the positive (greed) side, the recent reporting season highlighted very robust company earnings resulting in a record $246 billion sitting in company bank accounts. The dividends being paid during March and April amount to $36 billion, a record. Interest rates remain extremely low, regardless of a growing economy and low unemployment.

In the fear corner we have high inflation in US (7.5%), UK (6.5%) and Australia (3.5%) with interest rates expected to rise further to dampen demand. The cost of energy was going up prior to the tragedy in Ukraine, and the war has exacerbated it. Labour and energy costs are the two largest cost inputs of manufacturing. Labour markets are tight with only 4% unemployment, placing upward pressure on wages. Prices are rising.

Share investing requires discipline and the ability to withstand volatility. This volatility creates fear, which places pressure on share prices and creates opportunities. An understanding of company fundamentals provides a level of comfort to hold during volatile periods and even add to positions. Short-term price movements are difficult for us for forecast. Fundamentals are far easier.

We are in the midst of a unique financial experiment, with any number of potential outcomes. The type of investment to hold during inflationary periods are generally those with strong market positions and robust earnings coupled with a long-term holding period. These businesses tend to do better throughout a cycle, although are not the most exciting during market exuberance.

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