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Summer '24 E-Newsletter
Outside the Box Case Study
Help me buy a house! Can’t tell you how often I have heard this over the last few years. The market is tight, interest rates are high and getting a mortgage can be a painful and lengthy process that may lead to missed opportunities. Eddie and Diane were so excited by a house they looked at. They went to make an offer and had to put in contingencies that made the seller nervous. They went with another offer. Dream house lost! Why? Because while they had renovated their house to get ready to sell, they hadn’t renovated their finances to get ready to buy. Here are a few things we discussed:
Down payment – a larger downpayment feels better to a seller
No house sale contingency – be confident your house will sell or in your ability to carry two mortgages.
3. Be able to move quickly. A cash offer is attractive because it’s a combination of a 100% down payment and a quick close.
4. Access to capital is key. Old 401k plans and current 401k plans can be positioned for quicker liquidity.
5. Explore your support network. Don’t go to your parents until you’ve explored, understood and implemented all of your own options. Don’t be afraid of doing a little multi-generational planning. Just make sure you know what your asking for.
6. Non-cash ways parents can help kids. Cosign the loan. Stand by as cash flow, down payment or bridge financial support.
7. Understand the pros and cons of financing options – including leveraging options, restricted stock, ESPP, Insurance and other investments.
We have helped clients successfully navigate the housing market over the last few years. Making offers and having them accepted may be a challenge. Understanding how to renovate your finances for maximum curb appeal will help get your offer the second look it deserves to close the deal. Call us if you are even thinking of buying or selling a house. Exploring options and mapping out the journey is what we do. Let us help you.
FORE: Golf Opportunity
This summer, we are delighted to invite our clients for a round of golf with Financial Advisor, Nate Waller, at Val Halla Golf Club in Cumberland, Maine. We would be honored if you could bring a friend (or two) who you feel might benefit from learning about shepard FINANCIAL and hear from Nate about the services offered. Whether you are a seasoned golfer or just looking to try something new, please let us know if you're interested!
Looking Back: Financial Literacy Month
Financial Literacy month every April is an opportunity to teach the community how to trade well. Kids in grades 3-8th joined us on site to learn about spending, saving and investing as it relates to the four currencies we all trade- time, energy, relationships and money. One participant is saving for a miniature horse and did the math with Tom to figure out how to monetize running around the yard to raise the needed funds to meet the goal. Turns out it is 2,000 laps around the yard!
Looking Ahead: Undecided
I was thinking about this coming presidential election and reviewing a number of polls recently. I have always been skeptical of polls and especially more recently. Why more recently? Well it goes something like this. I like my friends. When asked how will I vote I treat others the way they want to be treated. Trump fans and Biden fans get a pretty neutral reaction out of me because I don’t care for either option and it’s a shame the two party system can’t produce better candidates. Something is broken. Let’s look again at the polling.
In one poll Biden is leading in Massachusetts by 25% with 21% undecided. In Virgina it’s a tie with 16% undecided. In Tennesee Trump is leading by 18% with 24% undecided. That’s a lot of indecision.
What to make of this. I think the country wants better candidates. The two party system is not seeking to find the best candidate for the country. Its viewing the search for a great presidential leader as if it were a championship football, hockey or basketball game. Bragging rights go the fans of the winning team for the next four years. Party is usurping loyalty from country. Social Media is feeding the fans. Specially designed news channels are programming the electorate. Do I trust my fellow citizens to make the right choice. Yes. The choice right now for me is to get as many people to reject both. Now is the time to ask for better candidates. Election day is not the time. Let’s not just hope for something better. Advocate for it. Let your elected officials know you want other choices.
The national race shows as a tie with 11% undecided. I don’t want a candidate good enough to beat the other side. I want a president good enough to lead this great country. Digging deeper I would guess that of those decided its more likely they don’t want the other guy to be president. There has to be a way to get better choices. Here at shepard-FINANCIAL we are working hard to help all of us better understand our economic system. There are problems that can be fixed. We just need to look again at many of the financial experiments we’ve been running and unwind the ones that don’t work, tweak the ones that are only working ok and find the stomach to continue looking for policies that support our people from struggling single mom’s to world saving technology corporate dreamers. Divided by nothing is not an error. It is our purpose.
Tom
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Evolve with your money.
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 directly.
All investing includes risks, including fluctuating prices and loss of principal.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies.
Tom Shepard, CFP®, APMA
CEO and Founder
shepard FINANCIAL
701 Route One Suite 4 |Yarmouth, ME 04096
(w) 207.847.4032 | (c) 207.331.0118 | fax 207.221.1117
Responsible Investment - ESG
As the world grapples with social and environmental challenges, investors are increasingly seeking ways to align their financial goals with their values. This paradigm shift has led to the rise of Environmental, Social, and Governance (ESG) investing. I wanted to discuss the concept of ESG investing and explain why it is not just a matter of ethical concern but also an avenue for potentially enhancing your financial returns. I hope this will provide some understanding as to what ESG investing entails and shed light on its financial materiality.
What is ESG Investing?
ESG investing is an investment practice that incorporates a company's environmental, social, and governance factors alongside traditional financial metrics into the investment analysis and decision making. It involves evaluating companies on how they manage their impact on the environment, how they treat their employees, suppliers, customers, and how they conduct their business in general, and is based on the belief that companies which demonstrate a commitment to sustainability, ethical business practices, and social responsibility are more likely to deliver long-term value to investors.
Why is ESG Investing Financially Material?
ESG investing is not just a moral choice; it is a financially sound strategy that can align your investments with a sustainable future while potentially enhancing your financial returns. By considering material environmental, social, and governance factors alongside traditional financial metrics, you gain a holistic view of the companies in which you invest, allowing you to identify businesses that are better positioned to manage risks, adapt to change, innovate, and build long-term value through:
Risk Management: Integrating ESG factors into investment analysis can help identify and mitigate risks that might impact a company's long-term prospects. For instance, companies with poor environmental practices may face increased regulatory scrutiny, reputational damage, or potential legal liabilities. Identifying and avoiding such risks can safeguard your investment portfolio.
Cost Reduction and Operational Efficiency: Companies that prioritize ESG factors often exhibit a greater focus on resource efficiency, waste reduction, and renewable energy adoption. These practices can translate into cost savings, improved operational efficiency, and enhanced profitability. By investing in such companies, you position yourself to benefit from their ability to adapt to a changing business landscape.
Innovation and Competitive Advantage: ESG considerations can drive companies to embrace innovation, enabling them to stay ahead of the curve and gain a competitive edge. For example, businesses that develop sustainable products or services align themselves with growing consumer demand for ethical solutions. By investing in these innovative companies, you can tap into emerging trends and markets.
Reputation and Stakeholder Trust: A strong corporate reputation built on responsible practices and positive stakeholder relationships is a valuable asset. Companies that prioritize ESG factors are more likely to cultivate trust among consumers, employees, regulators, and investors. This trust can translate into enhanced brand value, customer loyalty, and investor confidence, ultimately benefiting shareholders.
Access to Capital: As the importance of ESG factors continues to rise, many investors are allocating funds specifically to ESG-focused strategies. Companies with strong ESG credentials can attract this capital more easily and at potentially favorable terms. By investing in such companies, you align yourself with a growing pool of investors, potentially increasing demand for their shares and supporting their financial performance.
Like other investment approaches, ESG solutions will look different for individual investors based on specific objectives and goals. If you’d like to learn more or would like to discuss how we can integrate ESG principles into your investment plan, please give us a call.
Tim
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. Environmental, Social, Governance (ESG) has certain risks based on the fact that some ESG strategies may exclude securities of certain issuers for traditionally non-financial reasons and, therefore, investors may forgo some market opportunities as the universe of investments available may be smaller.
May 2023 Open Office Hour
We tried last night to have our monthly Open Office Hour zoom meeting. Technical difficulties caused problems and I decided to write to you instead. We were looking to cover the following topics: CPI, Debt Ceiling, YTD relative performance of stocks, bonds, real estate, Mental/Financial Health, our Core Program, Crypto and AI. Talking we can cover a lot of ground. Writing consumes more time and attention and that’s a rare commodity as of late so here’s a brief discussion about the most important topic we were going to cover the – The Debt Ceiling Debate.
A debt ceiling debacle, which is a failure by the government to raise or suspend the debt limit, can have significant negative effects on financial markets and the economy as a whole. Here are some potential market outlooks in the event of a debt ceiling debacle:
Stock market: The stock market may experience significant volatility and declines as investors become increasingly uncertain about the government's ability to pay its debts and the potential consequences for the economy. This uncertainty can lead to a sell-off of stocks, particularly those that are seen as more risky. We are looking at alternatives to hedge this debate. Tech and aggressive growth stocks have been leading the markets higher this year because of their direct correlation to interest rates and inflation. If we don’t solve the debt ceiling issue the stock market could fall and inflation rise as the dollar comes under pressure. The Federal reserve response under a US default is not easy to predict. There is a short term event and many institutional level investors have been buying hedges while siumultaneously investing more aggressively because the Fed appears done raising interest rates. Volatility is coming down by some measure (the VIX) but hedging this event is elevated. One way to hedge is to buy a protective put on the highest beta (volatile) part of the market.
Bond market: The bond market may also be negatively affected by a debt ceiling debacle, as investors demand higher yields to compensate for the increased risk of default. This can lead to higher interest rates and borrowing costs, which can in turn slow down economic growth. The debt rating of the US is the core/base rate underlying the entire bond market. A default could cause a rise in this key rate and then vibrate out through the whole spectrum of bonds. The mechanism for this is declining prices. The federal reserve could act to lower rates to try and combat this but they may also be faced with a declining dollar. The current inflation was supply and demand driven. Inflation like we had in the 70’s and 80’s was currency driven. This kind of currency valuation event is harder to control and therefore may place the Fed in a catch 22 situation.
Foreign exchange market: The US dollar may also come under pressure in the event of a debt ceiling debacle, as investors lose confidence in the currency and seek safer alternatives. This can lead to a depreciation of the dollar and higher inflation. It can also cause foreign investments to outperform domestic. Here in the US we have had a very long run of being the preferred investment. This could change with a single event like this one. It also could change as countries like China and Russia look to create a competing currency regime. The Euro was thought to offer such an alternative as well, so we have been here before.
Overall, a debt ceiling debacle can have significant negative effects on financial markets and the economy, leading to increased volatility, higher interest rates, slower growth, and a weaker US dollar. It is important for policymakers to address the debt limit issue in a timely and responsible manner to avoid these potential consequences. We are discussing how to hedge this and may buy a protective put on the NASDAQ (high beta stocks) DOW (global corporations) Dollar or Volatility. If our government waits to long this hedge could be a great strategy to get us through the short term turbulence. Call if you have questions or concerns. It feels like on the other side of this issue is a more normal environment.
September 2022 Open Office Hour
Inflation Number
This month’s inflation number is 8.1%, which is trending lower and seems like good news, but market treated this information like bad news because folks thought it would be lower. Coming into the announcement, markets were anticipating something better so upon the news, the market pulled back from a rally that started in anticipation of this announcement. Disappointment of the announcement resulted in down-day yesterday. The cycle we are in where Feds are raising rates has everyone looking for clues as to what the Fed will do – speed up, stop, slow down or reverse course. Corporate earnings reports tell how things were going for organizations last quarter(fundamentals) yet when earnings season ends, there are no earnings reports during this next several weeks. Stocks then tend to respond more to the news or technical factors instead of fundamentals. September is known for notoriously being the worst month of the year for market performance partly because of this.
Recession or Rolling Recessions
We are still experiencing the effects of the pandemic. Like a big rock dropped into a pond the effects ripple out over time. The initial plunge in all activity was followed by a surge in the buying of things. Travel leisure and entertainment lagged. Building surged and house prices and rents rocketed higher. Supply chain issues put additional pressure on prices. This is where the fed is trying to help calm the waters by raising interest rates to soften demand so that supply can catch up. The goal is to bring prices back down so that inflation doesn’t become entrenched. Inflation is already entrenched but at about 2-3% not 8.x%
A hot economy often causes energy prices to increase. Since energy is involved in the manufacturing of things, the shipping of things and getting people moving, rising energy costs can filter into rising prices. What we are seeing now is the purchasing of stuff cooling off from red hot. Travel and leisure purchases are ramping up. When the economy cools, we start worrying about a recession yet so far the decrease in spending on things is moderate enough that the increase in spending on travel and leisure is keeping us from being in a recession. There is a recession in part of the economy but not overall. Prices for oil, lumber and other commodities are falling. So inflation is coming down, but just not coming down fast enough to please the market. Food prices haven’t come down (except lobster) and have been impacted by droughts, floods, war in Ukraine. Specifically with food, we often get into substitution, looking for alternatives saves consumers some money. If inflation is high enough and labor supply tight enough, workers turn to their employer and ask for a raise.
If everyone gets a raise then its easier to justify raising prices and the higher level becomes entrenched. Inflation doesn’t actually need falling prices for it to moderate. No rise in prices eventually causes the average to come down. Falling prices will bring it down faster. That’s what the FED will be discussing next week. Are prices falling. Fast enough to bring inflation down but not so fast that people begin to wait. Anecdotally the housing market is the next area at risk of recession. House prices seem to be falling in some areas. We are still 4 million units short of supply and so demand won’t plummet and stay down but it is a key area where the FEDs policy is acting quickly.
So the corporations and the economy seem to be holding up. The Stock market is looking forward and trying to sort out what happens next. Some stocks to fall, then recover. Over time, other stocks fall and recover, which is all ok for the economy and keeps us out of recession. We should recognize government monetary policy wants a little bit of inflation. The dollar relative to other currencies is strong. Your USD buys more, as long as you buy overseas. Supply chain issues are global. The pandemic created chaos and we are still working through it. Visa, MC and AMEX continue to say that American consumers are “healthy,” and have money to spend.
Watching vs. trusting
Spoiler alert. If you knew the end of the movie, would you want to watch it? Where are we five years from now? When the Feds stop raising rates, and inflation returns to what it was a year ago then valuation techniques and formulas would begin to suggest higher prices for stocks and bonds. Growth stocks are priced based on Feds rates. Dividend stocks are priced on what decisions are being made at corporate level about the sustainability and growth of dividends. Bonds are valued differently. So a diversified portfolio will help manage risk over time. In the short run (3 months – year) the markets can create circumstances that cause asset prices to all behave in a similar way. In the long run more normal patterns return. So what does watching the stock market everyday do to help us trust it. Focus on the income from dividends, interest, rent, royalties, etc. allows us to see what matters most and learn to trust our plan for navigating this process. Eventually the effects of the pandemic will lessen and our new normal will begin to assert itself.
Past policies, procedures and predicaments
Policy makers are currently trying to equalize the tax treatment of stock buybacks and dividends. The fact they would be dabbling and in or interfering in the markets is not new. Change is the only thing that doesn’t change. During the great depression is the house value on a mortgage was less than what was owed the bank was allowed to foreclose. That’s changed. An accounting rule called mark to market was changed in 1938 helping the stock market to recover. It was brought back in 2007 and the repealed again in March of 2009 creating the same effect. Incentive stock options were a popular payment scheme in the late 1990s until accounting rules figured out how to value them. The fall of the tech stocks is partly just a repricing of this procedural change. In the 1970’s we went off the gold standard. That change will only happen once. So things that were significant causes of market turmoil in the past are not present in our current process. So watching and reading about past and present can help us understand the durability of our economic system and trust that we can get through this process and come out the other side better than when we went in.
We throw around a lot of terms and I recognize that not all of them are familiar terms for every listener or reader. If you are looking for a good glossary try this link www.Investopedia.com
In summary, a lot of vibration in the system has created ripples. The job of the CEO is to navigate the corporation through the weather – fair sky or stormy. The role of the investment analyst is to predict the weather and determine how severe today and tomorrow might be. The role of the financial advisor is to help you weather the seasons and trust that after winter will come spring. Corporations can thrive in any season and stocks can disappoint in any season. Over time things have a way of working out. Watch.
As always if you would like to schedule a call to discuss your investments, please reach out us at 207-847-4032 x100.
Be Well!
Tom
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 directly.
All investing includes risks, including fluctuating prices and loss of principal.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies.
July 2022 Open Office Hour
Observations
Diversification has not been working well this year. With rising interest rates, bond and stock markets were both dysfunctional until June. Recently this correlation seems to have returned to a more normal situation and it’s nice to see diversification working again. If the Fed feels like we are on the brink of a recession, they might stop, slow, or pause on interest rates. There are several models that even have them needing to lower rates in response to recessionary data.
Tom noted the Fear Greed Index from CNN. People are becoming less afraid of the market and less afraid of geopolitical issues. Less afraid usually means an improvement in market performance. The current reading of 39 is much better than 1 month ago when it was 14. See the URL screen shot below.
July asset class information
· Muni bonds are up around 2.3%, yield between 5-6%. A good sign that bond market is returning to normal and less afraid of inflation. Is it worried about a recession?
· High Yield Bonds are up
· The S&P is up about 4.5%
· NASDAQ up about 9.5% since the start of July
· Aggressive Growth stocks are up over 20%
· Biotech stocks up quite a bit as well and healthcare has weathered this storm better than some sectors
· Value stocks are up about 6%
· Real estate flat, not surprising since it is interest rate sensitive
Starting to see signs that inflation is coming down, gives us the opportunity to have the Fed pause or raise rates less, which is a positive development for certain types of stocks.
What are the different types of valuations for stocks?
1. Capital Markets pricing model compared to the risk-free rate of return – is interest rate sensitive
2. Dividend pricing Model: rising income from stocks causes buyers to pay more for that stock. Related more to business decisions and durability of the dividend and less to the Fed or broader economy.
3. Cyclical stock – fuel(commodities), retail, etc.
We looked at some examples of falling prices that help us get the feel of inflation beginning to come back down.
Tom reviewed the Lumber Futures Price chart. In anticipation of the COVID shut down, some producers went into maintenance in 2020 because they weren’t prepared for normal supply, nevermind the increased demand. A huge spike is often followed by increased production. Lumber pricing begs the question about a recession or is inflation going to slow down the building projects that people are willing to renovate, remodel, etc. We need more housing.
Tom reviewed the Gold commodities price. Not necessarily a great inflation hedge, although there is a spike when there are geopolitical issues at the forefront. Gold prices are coming down. That’s hopefully a sign of the chaos or entropy in the world receding a bit.
Tom reviewed the oil chart and discussed how oil prices are a function of inventory. They rise when we don’t have a lot of it. When comparing Oil prices vs. Gasoline prices, there’s a phrase called ‘rockets and feathers’ which refers to the relationship between oil and gasoline. When oil spikes, gas goes up like a rocket. When oil falls back, gas falls like a feather. Thankfully prices are coming down, but opportunists are out there – everywhere and in large numbers.
Copper prices have fallen as a direct response to what higher mortgage rates can do to the housing market. Often thought of a signal for recession, the falling price is just another example of the inputs to inflation working in the right direction.
We continue to believe that China working through its COVID issues is a key element in where the markets go from here. As a deflation exporter to the world, and a significant source of supply chain issues, we have been keeping a close eye on China.
Bears – believe this market is a result of money supply and over speculation. Earnings will be revised lower and valuations are still too high
Bulls – use current strength in earnings and momentum to support strength and resiliency in the economy leading to higher prices when the Fed stops raising rates.
Breadth in the market is a positive sign. Yesterday 98% of the market was up and the NASDAQ and S&P 500 broke through their 50 day moving averages. These are signs that this turn up in the market may be more durable than the last two. Dead cat bounce or beginning of a new bull market? Next weeks Fed meeting could play a major role in where we go from here.
Take August off and we will resume OOH Zoom calls in September 2022.
As always if you would like to schedule a call to discuss your investments, please reach out us at 207-847-4032 x100.
All charts referenced are available with their URLs in the screen shoots below.
Be Well!
Tom
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 directly.
All investing includes risks, including fluctuating prices and loss of principal.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
May 2022 Open Office Hour
Clearly the decline in the stock and bond markets has begun to create discomfort among investors who are certainly wondering when will the market stop falling and start climbing again. The account statement or your online portal are displaying numbers that make it look like we’ve lost one or even two years of growth. The NASDAQ is back to where it was back in November of 2020. The 20-year treasury is back to where it was when the FED was hiking interest rates in 2018. Bonds have offered very little value as a diversifier. Here’s a couple of chart from Franklin Templeton Investments. These are as of 5/2/2022:
Equities1 Week YTD 1-Year Close
S&P 500 ▼ -0.18% ▼ -13.1% ▼ -0.5% 4,123
DJIA ▼ -0.21% ▼ -8.9% ▼ -3.0% 32,899
NASDAQ ▼ -1.50% ▼ -22.2% ▼ -10.3% 12,145
Russell 2000 ▼ -1.29% ▼ -17.8% ▼ -17.0% 1,840
Foreign Stocks ▼ -2.78% ▼ -14.3% ▼ -11.4%
Emerging Markets ▼ -4.12% ▼ -15.7% ▼ -21.1%
Bonds2 Week YTD 1-Year Yield
10-Yr. Treasury ▼ -1.86% ▼ -12.9% ▼ -11.3% 3.12%
US Bonds ▼ -1.11% ▼ -10.5% ▼ -9.8% 3.62%
Global Bonds ▼ -1.26% ▼ -12.4% ▼ -14.0% 2.70%
Munis3 ▼ -0.75% ▼ -9.5% ▼ -8.7% 3.32%
So, what causing all this red ink? First and fore-most the greatest factor is the rate of inflation that has infiltrated our economy. Used cars, houses, asset prices, groceries, fuel are just a few of the areas where our expenses or costs to acquire have escalated and put pressure on our incomes to meet basic needs as well as desired wants. The YOY rate of inflation is about 8.3% as of today’s (5-11-22) report. If it were continuing to go higher I would be worried. It appears to be flattening out but didn’t offer the kind of directional change with magnitude that would cause the FED to pause or market participant to jump back in. The caution on the buy side is partly why the markets are falling. Remember that every transaction has two participants. For months there were multiple buyers for every available house, car and growth stock. The issue could be demand or supply. When demand alone is putting pressure on something of value prices rise until demand cools.
When the issue is on supply demand can be steady and normal but lack of inventory can cause prices to shoot up. That’s the issue we have currently is that supply on all sorts of items can’t keep up with normal demand. Supply chain disruptions and an over reliance on just in time inventory (JIT) were put to the test by the COVID Pandemic. China’s COVID policy of zero tolerance combined with new variants like DELTA, OMICRON and whatever we are calling the latest variation have made it difficult for anyone to get clarity about where we go from here.
So just like in 2018 when we had a 20% decline in the fourth quarter it was because the FED was hiking interest rates and corporate earnings became difficult to forecast. A price adjustment of 10-20% is normal under these circumstances. The market is worried about this list and increasingly added to the list would be recession worries:
• Federal reserving hiking rates
• Inflation
• Supply chain issues
• Ukraine
• COVID – see US and China Charts below
Bonds are not behaving like there is a recession on the horizon. So, if we had to go back in time and find a period that helps us understand what is happening to the markets I would choose 1991-1994. We had a recession that was short and sweet. It cost George Bush the presidency. Two years later the stock and bond markets declined together as interest rates rose. When things settled down the economy roared back to life and markets soared. It also corresponds to a time when the cold war was winding down and there was a global recovery from that as well.
I don’t have a crystal ball, but I do have experience helping clients rebuild wealth after these kinds of dislocations. Buying Yield, Writing Covered calls, Tax Loss selling, Roth conversions are just some of the ways we can take advantage of the current investing climate. Diversification, Dollar cost averaging and buying low and selling high are other more familiar ways. If you are worried, please call. We are not powerless so don’t lose hope. Keep the faith. We’ve lived through far worse and come out the other side better off.
As always if you would like to schedule a call to discuss your investments, please reach out us at 207- 847-4032 x100.
March 2022 Open Office Hour
Heard on the airplane, that masks won’t be required on flights after the 18th of this month. Restrictions are going away, cases and hospitalizations are going down, which would be perfect for travel and leisure sector to recover. Yet with the Russia-Ukraine conflict, we are experiencing another low point in the markets.
NASDAQ was down 20% from its all-time high yesterday, March 8th, which is defined as a Bear market. As we look at where the markets have ended up, how they gained, how they fell, and now because of the war, the volatility has been impacted by the conflict overseas. Let’s hope a peace agreement can be reached. I am intentionally only reading about this from the perspective of protecting your investments and portfolios. If you have money in oil or gold, your investments may be doing better than if you have tech stocks, equities. We have tools to protect your portfolio with a protective put to protect against catastrophe linked to the Ukrainian conflict but I hope your portfolios are significantly higher one year from now which is often the case under these circumstances. We have sent out communications with that kind of historical perspective.
Last month we were worried more about the Fed’s raising interest rates, perhaps as much as half a percent in March. Yet if the Fed is on pause due to the uncertainty of the war it might be good for stocks. Today’s significant upturn in the market, could be related to short-sellers adding to the folks buying more stocks.
LPL noted today about how the commodities sector has surged higher. Many of you have exposure to commodities through oil royalties, gold or through substitutions – like alternative energy, which was up 120% two years ago. At the beginning of 2021, you may have had plenty of exposure, which has dropped more recently.
We haven’t heard much about China lately. China continues to put pressure on technology sector. When we look at exposure to what’s happening there, many of you are invested in an Emerging Market fund. What happens there matters more to the global economy. They can make decision quickly and I expect them to change their minds and reverse policies that haven’t been working. China has money, so it’s unlikely that the Chinese will reach for weapons because they can compete with the wallet.
Cybersecurity stocks, like the etf HACK, have momentum and could do well in this kind of cold war environment. Also, undervalued asset classes would be another area to go with new money.
Inflation in relation to bonds. When the Feds raise interest rates, bond values go down. How are we going to generate income? Better during inflationary periods to own real assets like real estate for rent, which generate income. When looking at how to navigate this environment, bonds are not as safe as we’ve been told they are for a really long period of time. Bonds that are sensitive to long term interest rates can and often do lose value during this part of the business cycle. We need to be selective and careful about how to be allocated here. The traditional 60/40 portfolio may not work the way it has for the last 40 years.
US Dollar has rallied due to Russia-Ukraine conflict. The conflict has added to inflation pressures We do see imbalances working themselves out with the receding severity of the pandemic and would do so again with a negotiated settlement in Ukraine. Inflation should moderate in the weeks and months ahead.
As always, please reach out for a 1:1 meeting if you have any questions, concerns or what to discuss your portfolio.
All return’s data was found on www.marketwatch.com
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.
Securities offered through LPL Financial. Member FINRA/SIPC.
Investment advice offered through Flagship Harbor Advisors, a registered investment advisor. Flagship Harbor Advisors and Shepard Financial are separate entities from LPL Financial.
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