July 2022 Market Update
We hope you all had a happy & safe 4th of July weekend!
Since our last update, a couple of interesting things happened in June:
1. Everyone assumed the FED was going to raise rates 0.50% at the June meeting. But after a slight uptick in the inflation reading, they ended up raising them 0.75%, which was the single largest rate hike since 1994. The FED has gotten serious about fighting inflation. (Fact to keep in mind: The S&P 500 has been positive 71% of the time 12 months following the first FED rate hike. The first-rate hike was in March).
2. The downward trend we’ve seen all year continued in June and, in fact, briefly set a new low.
3. Early this year you began to hear whispers of possible recession; in June those whispers turned to yelling.
While the talking heads & “experts” on TV will debate the definition of a recession, we’ll focus on the reality that we’re in today: the market mid-month was down nearly 25% & the average recessionary bear market has roughly a 34% decline. So, if the averages hold true, then we are getting closer to this market turning around than we were 6 months ago.
Whether we have a recession or not is not the point for long-term investors though. Why? Because the US has averaged a recession nearly every 5 years since WWII; so frankly if we’re not in recession this year, we’ll be due for one in the coming years either way. And it looks to be the markets have nearly already priced in a mild recession.
We do expect the next few months to be choppy as markets absorb FED rate increases and the ripple effects of that while everyone anxiously looks for a signal that inflation is declining, gas prices are coming down, and the war in Ukraine to end.
We’ve made several tactical changes to the strategies so far this year that have worked to limit some of this downside exposure (i.e., added Treasury Inflation-Protection bonds, reduced international & emerging markets, increased our focus on dividends, etc.) and will continue to do so as we see changes in risks as well as new opportunities. While the last decade saw an unprecedented bull run in the growth markets, we do think the next bull will be a return to quality, profitable companies where dividends matter. And as rates have increased, we’re starting to see some attractive areas again in fixed income.
Here are the current brokered CD rates as of 6/28/2022:
We fully expect the FED to raise rates again at their end-of-July meeting, so we’d advise to hang tight a few more weeks if you’re looking to pick up some CD’s.
We’ll leave you with this Useless Fact of the Month to keep in mind next time you’re opening your account statements:
Ronald Wayne was the third co-founder of Apple, along with Steve Wozniak and Steve Jobs. In 1976, he sold his 10% share of the company for $800. Today, his 10% would have been worth of $35 billion.
Please reach out if you have any questions on your account or if you’d like a quarterly review and we’re happy to get that scheduled.
As always, thank you for being a client.
- - Sean & John