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October 1, 2022

by | Oct 1, 2022 | Quarterly Letters

Dear Client: Returns for the major stock indices and the current bond, brokered CDs, and money market yields are as follows: Index     YTD 2022 Dow Jones Industrial Average    -20.95% S&P 500    -24.77%   Fixed Income Yields     1 year 2 year 5 year 10 year 30 year Municipals 3.04% 3.07% 3.13% 3.26% 3.95% US Treasuries 3.95% 4.24% 4.07% 3.81% 3.76% Brokered CDs 4.15% 4.55% 4.75% N/A N/A   Fidelity Government Cash Reserves Money Market Fund 2.54%   The equity markets have been brutal through the first three quarters of 2022.  Despite three intra-year market rallies of 10%, 8%, and 16%, the market has retreated to a new low each time.  The S&P 500 is back to November 2020 levels.  Every major equity index (including foreign), sector (excluding energy), and equity style is down significantly, with the tech-heavy Nasdaq (-32%) leading the decline.  The US equity market’s performance so far in 2022 is the fourth worst start to a year since 1928, and the bond market is having its worst year (-15%) of all time.  Even the textbook 60/40 portfolio, comprised of the S&P 500 and 10-Year Treasury, is down 20% year to date. The US continues to deal with the worst inflation in 40 years.  The Federal Reserve has a dual mandate by Congress to maximize employment and price stability (inflation).  The Fed regularly states they want inflation to hover around or just over 2%.  Clearly, they have been missing their mark, as inflation has remained above 8% in each of the last six months, even as energy prices have been subsidized by a 28% drawdown...