Article 1 of 3: 2nd Quarter Commentary

As wonderful as the second half of 2020 and virtually all of 2021 was, 2022 started as a mirror image.  We cautioned our clients that excessive stock prices wouldn’t hold while the Federal Reserve tapered bond purchases and began to raise interest rates. This is happening now. 

When the Fed finally retired the word “transitory” to describe inflationary pressures, markets acted on cue and slashed the most speculative and highest-priced sectors. Some tech stocks declined 40%-80%, reflecting how aggressively growth stocks had been valued. The damage did not stop there. After February’s reading of the Consumer Price Index [CPI] reflected an 8% increase from a year prior, the Fed stated it would be more aggressive in fighting inflation. Markets then sold off broadly, in all but the most inflation sensitive industries.  Bonds, which have historically been viewed as a “safe” asset, did not escape.  The 20-year US Treasury is down 24% as of this writing from its highs in 2021.   

On top of inflation, rising interest rates, and constrained corporate profit expectations, Russian aggression is now a topic of daily conversation. Financial markets are constantly trying to price in further supply chain issues, soaring energy prices and a probable global food shortage. Uncertainty is high. It will take a while to settle, and we expect volatility and inflation to remain elevated for quite some time. 

Market Recap 

The first quarter saw the S&P 500 fall 4.6%. The tech-heavy NASDAQ 100 dropped 8.75%. The US aggregate bond index slid 5.9%. The All-Country ex-US Index (ACWI) lost 6% and emerging markets were off 7.5%. Damage centered on growth stocks (primarily technology and communications which were both down 15%) while value stocks generally fared much better. In anticipation of this dynamic, we began shifting some of the growth allocation in our clients’ portfolios towards value during 2021. Year-to-date the broad “growth” style is down ~7% while the broad value style is down ~2%. We expect this performance dynamic to continue for some time. 

Most of our clients are breathing easier knowing their investments can withstand current economic and global pressures. We don’t have to always be right about the direction of markets for clients to enjoy the spending we have planned together. Our strategies keep risk appropriate to investment timelines and spending needs.  Income streams are insulated from the serious erosion of capital that recessions impart on typical risk tolerance-based portfolios.   

Click below to read more about our current outlook and tactical strategies.

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