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July 2022 Market Letter

July 2022 Market Letter

July 15, 2022 by Don Creech, CCO

Ehhhh, what’s up, doc?

 

July 14, 2022

 

At the End of Q2 2022 –

 

The second quarter could be inserted in Macbeth, Act IV, scene 1 with the witches singing “Double, double toil and trouble,

Fire burn and caldron bubble….” It has certainly seemed like a witch’s brew to have so much havoc converging on all parts of the market.

Often when things go awry, we are told to be patient since similar events have happened in the past. Our brains tell us “This time is different” until the issue passes us by looking much like the past.

However, this time really is different. In all of U.S. stock market history bonds have been an effective safety haven to reduce portfolio volatility…until this year.

Historically, when stocks fall, Treasuries have provided some portfolio protection…until this year when bonds have fallen more than any standard portfolio model ever anticipated. Bonds  actually added to the S&P-500 losses.

That has rarely ever happened before … but  this year is another rare exception.

Historically in times of market turmoil, whether inflation or crisis caused, gold is expected to be a haven…until this year. Gold isn’t acting according to script. It’s down roughly 5% this year. And it’s down around 15% from its early March peak.

In normal bear markets for stocks, interest rates and inflation are falling which is good for bond prices…until this year. After flooding the economy with digitally printed money, the Fed watched inflation accelerate. We were told that inflation was “transitory” … “Not to worry.”

Both Treasury Secretary Yellen and Fed Chairman Powell have apologized to Congress for making a mistake. However, we are the ones paying the price.

Inflation may have peaked, that doesn’t mean relief is as fast as an Alka Seltzer – “Plop, plop. O’ what a relief it is.”

The delay in addressing inflation is, in part,  causing wages to rise as employers try to retain staff. Wage cuts don’t happen until a deep recession causes business closures.

The delay in addressing inflation is causing home prices, and more importantly, equivalent rental values to rise. Like wages, rents don’t drop until vacancies are everywhere you look. That isn’t happening anywhere except in the middle of deep blue cities.

We explained much of this in our July 9 Stock Market Update webinar which you can access at www.IRIRadio.com/video.

In prior bear markets, business was slowing, and inflation was dropping. The

Fed was able to lower interest rates so businesses and consumers would be confident to spend, thereby stimulating the economy…until this year.

Inflation is forcing rates higher whether by investors or by the Fed. On our radio program (11 AM Saturdays on 770-KTTH) we have warned that the Fed was painting itself into a corner.

Another way to look at the situation is that Chair Powell is a trolley car switchman.

There are two choices, inflation, or recession.

Raising rates makes the Dollar stronger hurting profits of our large multi-national companies. Lower profits are bad for stocks.

Well then, let’s have a recession. That’s bad for stocks, businesses shrink or close and unemployment rises. Except, this time is different.

The Atlanta Fed GDPNow data indicates we are already in a recession. Except, prices aren’t dropping. Shortages are still problematic. Employers are hiring, not firing.

This time is different.

The stock market rallies for a week to ten days then unwinds the advance. Even perennial optimists like JP Morgan’s Jamie Dimon have changed their tune lately. Last week he warned of a coming economic hurricane. Again, this time is different.

All our portfolios are dominated by or 100% cash at the present time.

Question? Call us. 800-317-9119.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Investor Resources, Inc. (“Investor Resources”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Investor Resources.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Investor Resources is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of Investor Resources’ current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://www.investorresourcesinc.com/. Please Note: If you are a Investor Resources client, please remember to contact Investor Resources, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Investor Resources shall continue to rely on the accuracy of information that you have provided.  Please Note: If you are an Investor Resources client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

 

Filed Under: Asset Allocation, Bear Market, Federal Reserve, Interest Rates, Stock Market, Uncategorized

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