In the past two weeks the market decidedly took a sharp turn for the worse. The world seems to be falling apart with out-of-control inflation, the war in Ukraine, UK enacting suspect fiscal policies, Europe in the midst of energy crisis and contentious midterm elections at home.

 

After a rough start to the year, we bottomed in mid-June and rallied 17%+ into mid-August on hopes than inflation was peaking and the Fed was going to slow its interest rate increases. In late August, Fed chair Powell was quite forceful in saying they are not close to being done and the market finally believed him, starting another selloff. We just made new lows on the year at -24% on the S&P 500 and are down 16% from the August high. And that’s just large cap domestic stocks. Foreign stocks are off 28% year-to-date and bonds are down 15% adding insult to injury. Thus the classic 60/40 portfolio is having its worst year ever. Not fun.

 

We feel your pain and understand how hard it is to be an investor right now, especially if you are retired! Despite the pain, our recommendation is (as always) to stay the course, control what you can and ride the storm out. While Wall Street is repricing risk and interest rates, Main Street is doing just fine (at least for now) with solid consumer demand and an extremely strong labor market. The selloff may continue (albeit as a slower pace) but in the mid to long run, stocks will become less expensive and higher interest rates make bonds more appealing as inflation (hopefully) recedes to more manageable levels. If the election results in split government, the market actually likes gridlock as it provides more predictability and less extremes. So as bleak as things seem, there might be some light at the end of the tunnel.

 

We are monitoring your accounts for tax loss opportunities and cash needs. We plan on meeting with most of you in the next 2-3 months as we go through year-end tax planning season. Please call or email us if you would like to discuss your portfolio in the meantime.