As always, I want to thank you for being such great clients and friends. A special shout out to those that have helped me raise new assets. For the new investments from existing clients and for referring friends and loved ones, I thank you.
Now, for a look at the markets.
It is now August, wow the summer is closer to the end than the beginning. That is sad. The market and economy are at an interesting crossroads. The jobs market has been strong because of a shortage of workers. Whether it is people not willing to work after a long covid layoff or people retiring early or immigration factors, the labor force participation is not where it needs to be. This is causing employers to retain their workers, and this has resulted in rising wages. This is inflationary as consumer spending remains elevated. Getting inflation from 9% to 3% or 4% (depending on indexes) was quick but getting to the Federal Reserve’s target of 2% may prove difficult.
The economy has stayed strong, despite so many calls for a recession by investment managers. This also provides a challenge for the Fed. So now we have interest rates rising due to the preceding as well as the fact that the Fed went from being the biggest buyer of treasuries to a seller as part of Quantitative Tightening (tightening financial policy). As long- term rates go higher, bonds become a better competitor to stocks for investment dollars.
The market has pulled back from its highs for the year by a small amount. This is very normal. The market is typically weaker due to low volatility as many active traders take vacation in August.
So, what am I doing?
For my clients, I remain exposed to the market but am using strategies that include dividends and derivatives to help address risk and strive to provide preservation. I still favor growth to value as I believe based on their balance sheets that growth stocks and investments remain the appropriate trade today and may be less exposed to economic downturns. Value stocks typically are energy and financials as well as consumer staples (low Price Earnings rations). Historically, energy usage goes down if the economy slows, financials are susceptible to higher interest rates as well as business defaults and closings (Yellow Trucking company and Bed Bath & Beyond are recent examples of company bankruptcies.) Finally, consumer staples can be hurt by falling inflation as that decreases revenues as prices come down and the consumer has become thriftier so may likely spend less or trade down in price points to store brands.
lf you are interested in speaking more about any of this, or have any other questions or concerns, please feel free to email me to schedule time to talk.
Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
The information provided, including references to market sectors are for general informational and educational purposes only. No comments referenced herein should be construed as a recommendation of any kind or investment advice.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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