This year, we have noticed a substantial increase in cyber fraud attempts, and the action of this criminal activity has become more sophisticated. We ask you to maintain a high level of attentiveness on all electronic correspondence and activities and, if you have any suspicions on account activities, please contact us by phone immediately.
The second quarter of this year has seen a continuation of the down trending equity markets that began earlier in the year. In June, equity markets entered bear market territory for the first time since the Covid-19 pandemic. The S&P 500 bottomed out at 23.55% down; while the Nasdaq was 33.70% off its high at one point. While equity markets have experienced significant contractions, so has the bond market with the Bloomberg US Aggregate Bond Index down 13.23% at its lowest point this year. The largest contributors to the market’s slide have been high inflation and the concern for a potential recession.
The Federal Reserve (the Fed) has stuck to their widely telegraphed plan of raising interest rates to normalize monetary policy. Monetary policy has been loose for some time, and the unprecedented stimulus measures passed after the onset of the pandemic contributed to record demand in a supply-constricted economy. To combat this stubbornly high inflation, the Fed has been consistently raising rates but the surprise readings in the month of May (8.2%) triggered a more aggressive response to tighten the money supply.
These actions by the Fed are meant to moderately reduce the rate of consumption which in turn should ease demand for goods; thereby, bringing inflation in check. The Fed walks a very fine line on being aggressive enough to tame inflation but not too aggressive to cause a recession. Due to a healthy consumer balance sheet, a tight labor market, strong wage growth, and resilient manufacturing and service sector data, we do not anticipate a recession. However, we remain cautious.
We know that the best long-term course of action in a down market is to remain invested, however, we also understand that each investor will have different goals, objectives, and needs. As a result, we began executing our Exchange Traded Funds (ETF) sell strategy for those clients that elected to participate. This strategy will place a portfolio in a more defensive posture in the event of a recession, however, performance will typically suffer in the recovery due to the large cash position generated. Our goal is not to time the market bottom but rather become more defensive until economic measures indicate an upward trending market. For those clients that elected to not participate in this sell strategy, we have continued to rebalance to our target allocations. In our opinion, neither strategy is better nor worse; rather, they are designed to achieve certain goals for each investor. If you are uncertain as to which strategy in which you are participating, please contact your portfolio manager, or me, and we will be happy to discuss this with you.
Our investment philosophy has been crafted over three decades to grow, while also being able to weather uncertain economic environments like the one we are in today. Yes, markets will rise and decline, but the core of our philosophy is focused on high quality company stocks which tend to hold up well, especially during uncertain times, relative to the overall equity markets.
| Thomas A. Toth, Senior Chairman | Kenneth Bowen, II President & CEO |