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October 1, 2022

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...

July 1, 2022

Dear Client: Returns for the major stock indices and the current bond and money market yields are as follows: IndexYTD 2022Dow Jones Industrial Average   -15.30%S&P 500   -20.57% Fixed Income Yields        1 year5 year10 year30 yearMunicipals1.64%2.27%2.75%3.25%US Treasuries2.73%3.03%3.00%3.16% Fidelity Government Cash Reserves Money Market Fund1.05% The first half of 2022 has undoubtedly been off to a rough start.  The 20%+ decline in the equity markets from their January 3rd highs has landed us in a bear market.  There has been nearly nowhere to hide as the bond market is also suffering its largest percentage decline ever (-10%) to begin a year.  Every notable equity index is down by double-digit percentages, and each market sector except energy is down for the year.  The value stock indices have significantly outperformed the growth indices in relative performance but are also still down for the year.  The markets have declined by 20% or more 26 times since 1929, three of which have happened in the last five years: the 4th quarter of 2018, the COVID decline of March 2020, and now the first half of 2022.  Though we know the market has recovered after every prior bear market, the patience, fortitude, and values of long-term investors are again being tested. The U.S. is likely in a recession as measured by the National Bureau of Economic Research’s definition: “a significant decline in economic activity lasting more than a few months.”  However, the more commonly referenced definition and harsher standard of two successive quarters of negative real GDP decline is still undetermined.  This is perhaps the most unusual recession of our lifetimes, with more than full employment...

April 1, 2022

Dear Client : Returns for the major stock indices and the current bond and money market yields are as follows: IndexYTD 2022Dow Jones Industrial Average   -4.56%S&P 500   -4.94% Fixed Income Yields        1 year5 year10 year30 yearMunicipals1.54%2.03%2.23%2.60%US Treasuries1.60%2.46%2.34%2.45% Fidelity Government Cash Reserves Money Market Fund0.01% The first quarter of 2022 has been distressing.  The news of Russia’s invasion of Ukraine has captured the hearts and minds of so many worldwide as the daily headlines of chaos and suffering are difficult to see, let alone to bear.  From a global pandemic to an unprovoked war by a nation with nuclear weapons, investors have had much to consider.  Anxiety, unease, and uncertainty have felt commonplace in recent history.  As investors, we have to again try to assess the risks to our investment strategies amid the fears and uncertainties.  Despite the volatility, the markets have been resilient as they have rallied back significantly for the year.  Though we cannot know how the invasion will play out, we can reflect on history, study the investment implications and alternatives, and attempt to mitigate the risks as we understand them.  Russia’s invasion of Ukraine on February 24th was a surprise to some, but not all.  The troops and drumbeat to war had been building along the Ukrainian border for months.  On the day of the invasion, the Dow Jones Industrial Average dropped 859 points at its intraday low, only to close up 92 points, an intraday reversal of nearly 1,000 points.  To date, both the market low (down 11% or 4,000 points) and peak fear were during the first day of the invasion.  The markets again...

January 1, 2022

Dear Client: Returns for the major stock indices and the current bond and money market yields are as follows: Index         2021Dow Jones Industrial Average   20.84%S&P 500   28.71% Fixed Income Yields        1 year5 year10 year30 yearMunicipals0.19%0.60%1.05%1.54%US Treasuries0.38%1.26%1.51%1.90% Fidelity Government Cash Reserves Money Market Fund0.01% Happy New Year!  The equity markets delivered impressive results in 2021 as long-term investors were again rewarded.  We experienced three declines of 5% in the S&P 500 index, reaching no greater than a 6% decline.  The market rose steadily, similarly to 2019, in broad-market support.  All of the sectors comprising the S&P 500 appreciated more than 10%.  Small, mid, and large company indexes performed in excess of 20%, as did growth and value stocks.  It was difficult to NOT make money in equities this year.  The bond market, on the other hand, had negative returns. The Total Bond Market Index was down 1.86% in total return.  The real rate of return factoring in the current inflation problem made fixed income especially painful in 2021.  For many reasons, the equity markets continue to attract demand, and asset prices have been rising everywhere.  As an investor, I cut my teeth in a golden era of investing (the late 90s).  Back then, the market delivered five straight years of 20%+ returns.  Similar to now, market participants were making money seemingly ‘hand over fist.’  Many portfolios had gravitated away from diversification, and many market newbies had portfolios littered with the latest high-flying stocks.  Moreover, they were often leveraged in margin and excessively overweighted in the hottest flavor (technology sector).  That generation of investors heard the scary words “it’s different this...

October 1, 2021

Dear Client: Year-to-date returns for the major stock indices and the current bond and money market yields are as follows: Index         YTDDow Jones Industrial Average   10.57%S&P 500   14.68% Fixed Income Yields        1 year5 year10 year30 yearMunicipals0.18%0.56%1.13%1.73%US Treasuries0.07%0.98%1.52%2.08% Fidelity Government Cash Reserves Money Market Fund0.01% The markets have continued to grind upward in 2021.  The year-to-date performance numbers frankly speak for themselves.  This bull market continues to reward long-term investors as the climb has been steady over the past year.  Despite the healthy market rally, we continue to grapple with the effects from Covid and the imbalances that have been caused in its wake.  We continue to believe Americans are learning to live with the new normal and the worst of the economic disruptions seem to be behind us.  Despite some areas of the market being overvalued and a market correction overdue, the market has remained resilient, and we remain optimistic. Inflation continues to be at the forefront of concerns facing investors.  Inflation means rising prices or too many dollars chasing too few goods and services, and currently is the symptom of underlying reproachable issues; some will self-correct in the short run, while others will take more time.  The most notable causes are: supply problems, labor shortages, massive fiscal stimulus packages, seemingly endless manufactured low interest rates, and asset purchases (the Fed balances sheet).  Each of these is its own discussion, but all are contributing to rising prices.  Once again, the question is where to go from here?  For starters, we believe the labor shortages and supply problems are temporary and have begun correcting back to normal levels as the...