Labor Day Investment Update
September 2, 2022
The S&P500 has pulled back over the last two weeks as the market digests a slightly more hawkish tone from the fed. Jobless claims came in a little lower than expected yesterday, which puts some additional pressure on the fed to raise interest rates (because a strong labor market is inflationary, and the feds number one priority is to control inflation).
We wanted to provide a brief update with our thoughts on recent comments from the fed as well as how we’re responding in our portfolios. In summary, we think the fed's slightly more hawkish pivot is necessary as they move to bring inflation lower. We expect some market volatility until the rate of inflation is significantly reduced and maintain diversified, balanced portfolios with a defensive tilt. This week, we made use of volatility to price up a yield note with attractive terms and an 8.3% yield.
Market update and GoalVest view
Bringing down inflation is in our view the most significant challenge facing the economy and markets today. That challenge is still yet to be properly addressed, though over the past two weeks the federal reserve has made statements that suggest that they are increasingly ready to act to bring inflation down. Last week at the Jackson Hole conference Jerome Powell reiterated the feds commitment to price stability as their number one priority, with a 2% inflation target as their goal (not just a month or two of declines in CPI). Since then, several regional federal reserve officials have made similar comments. As the article below suggests, Powell’s signal towards being tough on inflation is a good place to start when it comes to bringing inflation down. We will be watching his posturing closely.
The feds slightly more hawkish pivot has resulted in some market volatility as markets have started pricing in higher interest rates. We expect volatility until the challenges of combating inflation and growing the economy through uncertainty are properly addressed. On the positive side, if the fed is successful in controlling inflation sooner rather than later as their statements suggest, that will result in price relief for households and reduces the length of the interest rate hiking cycle (which is good for stocks over the long term).
What are we doing in our portfolios to position for uncertainty?
We made use of volatility this week by pricing up a structured yield note with a 12-month term, an attractive yield of 8.3%, deep principal and coupon protection of 40% and the S&P500 as the only underlying index
We maintained our balanced portfolio with a defensive tilt as stocks pulled back over the last two weeks
We have portfolio hedges in place through structured hedged notes to protect capital
We are overweight value and quality high dividend companies with defensive characteristics and attractive valuations
The portfolio remains balanced and diversified and as always, we are invested in high quality American companies that can grow their earnings over the long term with the confidence that after almost every pullback, recoveries have been much stronger.
Disclaimer
The information presented should not be considered personalized investment, financial, legal, or tax advice. This notification is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, and are based primarily on assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change. Past performance is not indicative of future performance. Principal value and investment return will fluctuate. There are no implied guarantees or assurances that the target returns will be achieved, or objectives will be met. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal. The values and performance numbers represented in this report reflect management fees. The values used in this report were obtained from sources believed to be reliable. Performance numbers were calculated by Black Diamond using the data provided by your custodian. Please consult your custodial statements for an official record of value.
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