Hello everyone, I hope you're all doing well. As we've crossed into the second half of the year, it's time for what I like to call the 'halftime report'. We've certainly faced some significant challenges, and without a doubt, this year stands out as one of the most tumultuous periods in recent memory for both markets and investors. Let's dive into a mid-year review coupled with a forward-looking perspective.
This year marked the roughest start for markets in over half a century. Echoing a similarly volatile period back in 1970, we are feeling the heat of high inflation once again, spurred by a multitude of factors including geopolitical strife, supply chain disruptions, and the economic aftermath of the COVID-19 pandemic.
In response to these unprecedented conditions, there's been massive fiscal stimulation, with the Federal Reserve doubling the size of its balance sheet. This stimulus, alongside zero interest rates, has certainly propelled the markets upward. Yet, such artificial highs must eventually come down, and we are currently in the throes of that correction, working through the accumulated excess of liquidity amid rising inflation.
It's been a rough ride: the S&P 500 has tumbled by 20%, and the tech-powered NASDAQ has plummeted 30%. Long-term treasury bonds aren't faring much better, with significant losses that have caught many investors in the crossfire. Contrary to the expectation that a balanced portfolio would provide safety, we've seen substantial downturns affecting a wide range of investment strategies.
As we scrutinize the Federal Reserve's moves, it's likely they may soon reach the end of their interest rate hiking cycle. As these hikes decelerate, we might see opportunities emerging from the recalibrated economy.
Inflation is the critical watchword of the year. With consumer prices spiking to levels unseen since the early '80s, we're feeling the cost-of-living squeeze. However, there are signs of potential relief on the horizon. Commodity prices, particularly copper and oil, have started to decline, and if this trend continues, it could indicate a peak in inflation. But stabilization is the goal — a tricky balancing act eagerly anticipated by investors and policymakers alike.
Now, addressing the looming "R" word – recession – it seems that the definition is now a matter of semantics. With features like an inverted yield curve and plummeting commodity prices, the indicators suggest we're already there, or at least on the brink.
But let's not despair at the mention of recession; it's a natural economic cycle, often a reset button that offers a clearer view forward. The critical task now is not merely to weather this storm but to identify emerging opportunities as the economy restabilizes.
As we forge ahead, the key is to stay vigilant and strategic. The market downturn presents potential buying opportunities, and a pivot from the Fed could signal a time to revisit equity exposure. Keeping a keen eye on upcoming earnings reports, especially from big tech, will offer clues about consumer demand and broader economic health.
So, as we navigate these challenging times, remember that I am here to discuss any concerns or questions you might have. We are not just facing economic uncertainty; we are actively learning how to move through it with grace and resilience.
Your financial future is not predestined by market fluctuations. With informed analysis and strategic planning, you can weather economic storms and emerge in a stronger position. Here's to continuing the journey toward stability and prosperity as we roll through 2023.