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Market Updates & Actions we are Taking

  1. In response to higher inflation and expected rate hikes by the Fed (to offset the increased levels of inflation), markets have been moving down recently. 
  2. In the U.S., we are now officially in a market correction as measured by the S&P 500.  The standard measure of a correction is a pullback between 10% and 20% from the market highs.
  3. Currently, the Nasdaq Index (a mostly technology market index) is off over 20% which puts it in a Bear Market (as defined as a decline of more than 20%).
  4. The same goes for the Russell 2000 (a small-cap market index), which is off over 22% from the 52-week market highs.
  5. These declines have much to do with the overvaluation of these indices. It was only a matter of time before we would get some form of a market pullback.
  6. The major issue causing the market concerns was the ever-increasing level of inflation brought on by the pandemic-generated fiscal and monetary stimulus. At some point, the Fed will step up and look to slow the economy by raising interest rates.
  7. The Russian invasion of Ukraine is adding increased angst to the markets.

These are all normal progressions and reflect a market that is re-establishing an appropriate valuation. Nationwide the covid pandemic continues to slow as the number of active cases reduces dramatically. Most importantly, the consumer continues to have pent-up demand for goods and services, with the availability of cash to spend.

Most importantly, none of the topics above should have the effect of bringing on an economic recession. Growth is still strong with the 4th quarter GDP revised to a 7% rate. The Leading Economic Indicators have slowed but are not forecasting a slowdown in the economy. In addition, we have a positive yield curve that portends continued strength in the economy.
Actions we are taking:

  1. We are monitoring the market.  Corrections happen about every 14 months, and it has been a while since we have had one.
  2. We will use the correction to re-balance the portfolios.
  3. Should circumstances warrant, we will be doing tax-loss harvesting to minimize income taxes wherever possible.
  4. We are shortening the maturities of the bond side of the portfolios. We expect that the Fed will raise rates and such moves are detrimental to long-duration bonds.
  5. We are maintaining our equity allocation with a few minor adjustments.
  6. We are selling a portion of the Energy stock allocation as this sector has had a substantial increase over the last two years.
  7. We are using those funds by allocating between Utility stocks, European equities, and U.S. large-cap stocks.

We want to give you confidence that we’re monitoring the situation and its potential short and long-term impacts on your investments. If we need to make adjustments, we can, but ultimately staying the course puts you on the path to reap the rewards in prosperous times.
If you’d like to talk through any questions or concerns, know that we’re just a phone call away.
Feel free to reach out anytime. 

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