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Quarterly Client Letters

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... read more

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... read more

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... read more

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... read more

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... read more

July 1, 2021

Dear Client: Year-to-date returns for the major stock indices and the current bond and money market yields are as follows: IndexYTDDow Jones Industrial Average   12.73%S&P 500   14.41% Fixed Income Yields1 year5 year10 year30 yearMunicipals0.14%0.51%1.00%1.58%US Treasuries0.07%0.88%1.46%2.08% Fidelity Government Cash Reserves Money Market Fund0.01% Happy 4th of July!  As we again celebrate the birth of our nation, we would like to reflect on the strong first half of 2021 in the equity markets.  Any way you slice it, the equity markets are doing well as every sector of the S&P 500 is positive for the year.  If you are a holder of equities, you are generally pleased; every equity style, from value to growth to foreign, is performing.  The vaccines are working, and the virus is becoming less of an issue for equity markets with each passing day.  The American economy (as measured by GDP) is on pace for its best year-over-year growth since 1984, and pre-tax corporate profits are back to all-time highs.  American consumers and corporations are flush with cash, and the pent-up demand is unwinding into the economy.  Combine all of this with an asset-friendly Federal Reserve Bank committed to low interest rates, and you have higher stock prices and an economy ready to roar. As we often communicate, looking backward is always easy, evaluating the present can be challenging, and prognosticating the future is even more difficult.  As investors, we live in unusual times.  We have had a litany of unprecedented and rare events: from shutting down the economy, to enormous stimulus packages, to unemployment rising from 3% to 14% in weeks, to the Fed increasing the... read more

April 1, 2021

Dear Client: Returns for the major stock indices for 2021 and the current bond and money market yields are as follows: Index        YTDDow Jones Industrial Average   7.76%S&P 500   5.77% Fixed Income Yields    1 year5 year10 year30 yearMunicipals  0.10%0.50%1.08%1.81%US Treasuries  0.06%0.93%1.73%2.40% Fidelity Government Cash Reserves Money Market Fund0.01% The first quarter of 2021 is off to a good start for the equity markets.  First and foremost, COVID cases are falling precipitously, and the vaccines are proving to be a huge success.  Though the numbers seem to vary, we believe that between the vaccines, the number of counted cases, and the CDC’s estimated unreported infections, nearly 70% of Americans have some form of antibodies.  And though we certainly do not know the final outcome of the new strains or whether the vaccines will permanently end all variations of the virus, we believe the worst is most likely behindus and that herd immunity will soon be here in 2021; and the great re-opening of America is underway!  While we remain optimistic for the year ahead, we believe as long-term investors, it is constructive to reflect on the last year.  We all remember too well how we felt one year ago, when the world nearly stopped in the uncertainty of the virus.  In the depths of the fear, no one knew how severe the virus would be and to what extent the economic engine would slow.  This fear caused panic and led to extreme behavior, leaving some companies booming while others ground to a halt.  The world was in disarray, and markets never stopped discounting and adjusting for every possibility.  Amid the uncertainty, we wrote:... read more

January 1, 2021

Dear Client: Returns for the major stock indices for 2020 and the current bond and money market yields are as follows: Index         2020Dow Jones Industrial Average     9.72%S&P 500   18.40% Fixed Income Yields1 year5 year10 year30 yearMunicipals0.13%0.22%0.69%1.47%US Treasuries0.10%0.36%0.91%1.64% Fidelity Government Cash Reserves Money Market Fund0.01% Happy New Year!  Believe it or not, markets are back to all-time highs.  Despite all the problems of 2020, we have again weathered the storm as investors.  As we know too well, the panic from the virus created havoc for countless lives, businesses, and livelihoods.  We have all dealt with the effects of the virus within our own families; the stress and effects are real and challenging.  As for the markets in 2020, the fear and panic created one of the greatest market opportunities of all time.  The major market index (S&P 500) has rallied 70% since the March 23rd low.  During this recovery, the markets also gave us an 8% decline in June, an 11% decline in September, and a 9% decline before the election in October.  Through it all, long term investors again logged a positive year in the markets.  Once again, the day-to-day grind of market volatility, along with all the stresses related to the virus, made perseverance as difficult as ever. We believe the momentum in the current bull market has legs into 2021 for many reasons.  First and foremost, the virus is being conquered through vaccines.  We believe the rollout will transpire better than expected, and every American will have access to the vaccine in 2021.  The heroes in American private industry met the call, as drug companies like Moderna... read more

October 1, 2020

Dear Client: Returns for the major stock indices for 2020, and the current bond and money market yields are as follows: Index3rd QuarterDow Jones Industrial Average   -2.65%S&P 500   4.09% Fixed Income Yields1 year5 year10 year30 yearMunicipals0.13%0.29%0.84%1.67%US Treasuries0.12%0.28%0.68%1.46% Fidelity Government Cash Reserves Money Market Fund0.01% For two weeks leading into September, the S&P 500 was again making new all-time highs; a truly remarkable climb (60%) from the March 22nd lows.  The month of August tallied a positive 7.19% return followed by a September decline of 4.32%.  Clearly, volatility is here again after a very strong and steady climb in 2019.  We all know the recent history by now: a once in a several generation pandemic and unprecedented government responses caused the markets to panic, and in just a matter of weeks dropped by 33%.  Undoubtedly the pandemic and ensuing reactions created an indelible impact on many businesses.  Through August, there have been 180 bankruptcies, each with liabilities of over $50 million.  In total, it is estimated nearly 100,000 businesses will never return.  There are many examples and statistics available to illustrate the economic destruction left in the wake.  Unfortunately, the damage is still being uncovered, and despite huge gains recently in growth and jobs, a full recovery is likely still years away. At LYNCH & Associates, we believe that despite the challenging year of 2020, the markets have held up reasonably well.  We are happy that nearly all of our clients participated in the recovery and did not partake in any significant market timing.  Certainly, each client is unique and has varying risk tolerances and goals, but the vast majority... read more

July 1, 2020

Dear Client: Returns for the major stock indices for 2020, and the current bond and money market yields are as follows: Index2nd QuarterDow Jones Industrial Average  -9.55%S&P 500   -4.04% Fixed Income Yields1 year5 year10 year30 yearMunicipals       0.21%0.46%0.86%1.70%US Treasuries        0.15%0.29%0.66%1.41% Fidelity Government Cash Reserves Money Market Fund0.01% So far, 2020 has been quite a tumultuous year; and we are only halfway through!  As we all know too well, the decade-long bull market came to an abrupt halt in February as COVID-19 created a nearly unprecedented type of fear and great uncertainty.  In the fog of the times, traders panicked and pushed the markets down 33 percent from the all-time highs.  As we remember, there were no easy answers for investors.  In March, we wrote that everything we have ever understood about investing is not to panic, and not to overreact.  We know that trying to time the market is difficult, and just when the fear is at its highest, the markets can turn quickly without pause; and sure enough, March 23rd marked the beginning of the best 50-day rally in market history.  As the markets recorded their best quarter since 1998, the age-old contrarian axiom to “buy when no one wants them and sell when everyone wants them” again proved to ring true.  We have again been reminded that truly buying low is always difficult because the fear and uncertainty are at their highest and this time was no exception. Undoubtedly, we live in unusual times, and with investing it is no different.  These markets have many of the most respected voices on Wall Street voicing an array of differing... read more