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My Notes on the Market: June 2022

My Notes on the Market: June 2022

June 07, 2022

It appears that mid May marked a pretty distinct low in assets prices, and the last 2-3 weeks have seen a comeback in stocks, taxable bonds, and muni bonds. The SP 500 bottomed in the 3900 area[i] and has risen to the 4150 area as of June 6, 2022[ii]. Taxable bonds recovered about 3% and municipal bonds have recovered about 6% from their historically large, recent declines[iii].

Furthermore, it appears near certain that the Federal Reserve will raise short term rates 50 basis points at the June and July meetings to get fed funds rate to 1.75 percent[iv]. It also appears they may wait to see just how big an economic effect that will have before they project whether they will raise rates again in September.

From our vantage point, we think the recent rise in interest rates has had a profound impact on the US economy.

Mortgage rates above 5 percent[v], soaring gas and electric prices, as well as food, clothes, travel and health care costs have all exploded higher. The average consumer is in a very tough spot financially. We think this could really hurt demand in many industries and possibly cause recession. We do not think the Federal Reserve needs to raise rates 5 more times after July to slow down the US economy. Asset prices have declined significantly in the last 9 months. A lot of the repricing of assets has already been done.

We need to watch and wait to see what happens through year end.

Does inflation slow up?

Do supply chain issues get solved or do they get worse?

Does the war in Ukraine end, stay the same, or get worse?

What happens in the midterm elections?

What effect do cryptocurrencies have on the investment landscape?

No one can say with any certainty what happens on the above questions.

From an investment standpoint, we have assets that provide durable income streams that can withstand many economic environments, so even a wide range of outcomes may only marginally affect our investments in the long term. In the short term, a positive resolution to these issues would allow us to recover some of the losses through year end and beyond.

Feel free to call or email us if you have specific questions or concerns.

Best wishes for a happy and healthy start to the summer!

 


The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. LPL Tracking #1-05290899.

[i]https://www.investing.com/analysis/sp-500-drop-below-3900-was-not-a-random-walk-200624211

[ii]https://www.marketwatch.com/investing/index/spx

[iii]https://www.wsj.com/articles/investors-dip-back-into-municipal-bonds-11653949640

[iv]https://www.reuters.com/markets/us/feds-brainard-getting-inflation-down-is-no-1-priority-2022-06-02/

[v]https://www.cnn.com/2022/05/19/homes/us-housing-mortgage-rates-may-19/index.html