It doesn’t seem possible, but here we are closing in on the midway point of the year. 2022 has started out as one of the most volatile starts in any year looking back all the way to 1939. But what we are seeing we do believe to be a normal part of the economic cycle and we remain optimistic on the second half of the year. But, we also continue to keep a close eye on inflation, the Federal Reserve and rising interest rates, the war in Ukraine, and the global supply chain.
Coming in to 2022 we expected an increase in volatility and we have certainly seen that. As a frame of reference, in 2021 there was just one day where the market lost 2.5% or more in a single day. As of May 9th, this has happened 8 days or about 1 in every 9 trading days*. Fixed income is also having its worst start to the year in over 40 years. Both stocks and bonds are down over 10% for just the second time in history. But, it is not all bad news. Corporate profits continue to remain strong and consumer balance sheets are at the highest levels they have ever been. Supply chain worries for the most part continue to ease as companies like Target have more inventory on hand than they did pre-Covid.
As we round the corner on the first half of the year the investment committee has been meeting frequently and we wanted to share a few notes and thoughts:
- Over the course of the past week we have made some slight tweaks and adjustments to better align with what we are seeing after discussions with other tops teams, firms, and economists.
- With the draw down in equities, bonds have become overweight in the strategies compared to their intended target, this rebalance will help to “reset” things to their intended allocations – essentially buying stocks low.
- In times like we are in now, companies with good solid balance sheets and cash on hand typically, and have thus far, performed better. We have added a little to these managers but still remain fairly balanced between value and growth.
- With fixed income yields on the rise, we do see an opportunity to lock in some new bonds at some higher yields and also have added to our alternative fund allocation in search of more yield and price stabilization as well.
- Growth does continue to slow, but with record inflation we believe it remains prudent to be overweight stocks to bonds. There is still record amounts of cash on the sidelines. We do still believe that when we look at all of 2022, things can turn around and surprise us from where we are at on the upside.
There continue to be much to keep eyes on from a total economic picture. Companies have continued to show resilience in the face of rising interest rates, inflation, war, and record money printing and we believe that they can continue to do so in the second half of 2022.
Until next time, turn off the TV and spend time with loved ones and if there is anything we can do for you, do not hesitate to reach out!
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