Flash Comment for March 13, 2023
March 13, 2023
In light of major news events last week, we wanted to provide a brief update on the markets. Last week has seen a confluence of events that is affecting both the stock and bond markets. They include:
- Comments from Fed Chair Jerome Powell regarding a more aggressive tone in monetary policy to fight inflation.
- We do note that additional news creates a scenario to argue against this aggressive tone.
- The February labor report showed stronger-than-expected job gains. This is a key metric that the Fed considers in their decisions to raise interest rates.
- A lower-than-anticipated increase in wages, also, a key metric for the Feds.
- Treasury yields are tumbling in the wake of the labor report and worries surrounding the banking sector.
- A continuing inversion of short-term and long-term interest rate yields.
- The U.S. dollar is sharply lower, while crude oil and gold prices are trading to the upside.
- The failure of Silicon Valley Bank - SVB. We note that this bank has a special niche serving venture capital firms and tech startups. Although specialized, it is concerning to the overall banking industry.
- Additionally, we are quite concerned with the multi-trillion-dollar federal budget being discussed and its potential impact on inflation and the national debt.
We also want to offer some information to comfort you as you see news about the regional bank failure in Silicon Valley, California referenced above. Our main custodian is Charles Schwab, one of the largest custodians in the world, holding over $7 trillion dollars in customer assets.
We have included an excerpt concerning The Securities Investor Protection Corporation (SIPC). The SIPC (similar to FDIC protection for banks) protects customers of brokerage firms. https://www.sipc.org/for-investors/introduction
“The Securities Investor Protection Corporation (SIPC) protects customers if their brokerage firm fails. Brokerage firm failures are rare. If it happens, SIPC protects the securities and cash in your brokerage account up to $500,000. The $500,000 protection includes up to $250,000 protection for cash in your account to buy securities.”
Regarding SIPC, FDIC and additional account coverage.
To begin, we have been urging caution in our Affinity Capital Three Minute Market Digest’s since early last year. Our Affinity Capital Portfolio Models contain high levels of short-term U.S. treasury bonds and cash – as much as fifty percent of our total portfolios. We added gold and silver earlier this year and some of the weakness in our portfolios are in positions where we have double-digit gains. We did sell most large growth, mid-size, small-size, and international investments early last year.
We want to stress that your portfolios are not highly correlated to the major benchmarks seen on the news, mainly, the Dow Jones Industrial Average, The S&P 500, and the Nasdaq. While we still see weakness as we manage through 2023, we are focusing on income producing securities as well as long-term opportunities amid this weakness.
We certainly understand that our clients lead busy lives. We will continue reaching out to clients to schedule first quarter meetings but if we have not yet visited, we ask you to reach out to us to schedule.
Of course, if you have immediate concerns or questions, call us anytime.
We seek to serve you at a high level and be good stewards of your hard-earned assets.
Thank you for the opportunity to be of service to you and your family!
Markets continue to navigate a mix of encouraging economic news and ongoing global uncertainty. While investors remain optimistic about the long-term outlook for the economy and corporate earnings, headlines from around the world continue to influence day-to-day trading. One of the biggest factors remains geopolitics. Although tensions in the Middle East have eased somewhat, investors are still watching developments closely because they can affect oil prices, inflation, and ultimately interest rates. Lower oil prices this week have helped calm some inflation concerns, which has been a positive for the broader market. Technology also remains in the spotlight. Strong earnings and continued investment in artificial intelligence have supported parts of the market, although investors are becoming more selective as valuations in some technology companies remain elevated. Looking ahead, markets will continue to focus on inflation data and the Federal Reserve's next steps. If inflation continues to moderate, it could provide support for stocks. However, unexpected developments overseas, changes in energy prices, or shifts in economic data could still create short-term volatility. While short-term market movements can be unsettling, they are a normal part of investing. Rather than reacting to daily headlines, we remain focused on building portfolios designed to weather changing market conditions and help you pursue your long-term financial objectives. Maintaining a disciplined, diversified investment strategy remains one of the most effective ways to navigate uncertainty. As always, if your financial situation or goals have changed, we're here to help ensure your plan continues to align with what matters most to you.
As we turn the page to June, markets find themselves at a familiar crossroads: optimism tempered by uncertainty, momentum tested by macro headwinds. May closed on a constructive note, with equities finishing the month at or near all-time highs — a remarkable recovery from the turbulence that defined the early part of the year. The dominant theme of 2026 has been resilience in the face of disruption. From the tariff volatility of the first quarter to geopolitical shocks in the Middle East, investors have repeatedly demonstrated a willingness to look through near-term noise toward the fundamentals. That posture has been rewarded. The S&P 500 has returned over 10% year-to-date, driven in large part by an exceptional earnings season — first-quarter blended growth came in above 28%, the strongest pace in several years — and continued enthusiasm around artificial intelligence investment. Yet the risk landscape heading into summer is far from benign. The conflict in the Middle East remains the single most important variable in the macro calculus. Energy markets have been severely disrupted, with Brent crude up sharply on the year despite recent relief as hopes for a resolution in the Strait of Hormuz gained traction. Oil prices are not merely an energy story — they are a consumer story, an inflation story, and ultimately an interest rate story. A durable peace agreement could be a meaningful tailwind; a breakdown in talks, the opposite. The bond market deserves particular attention. One of the defining features of this cycle has been the breakdown of the traditional stock-bond diversification relationship. Since the onset of the Middle East conflict, long-duration Treasuries have failed to provide the ballast they historically offered during periods of equity stress. Sticky inflation, persistent fiscal deficits, and energy-driven price pressures have conspired to keep yields elevated. Investors relying on a classic 60/40 framework may find that the playbook requires updating looking into high quality corporates. On the monetary policy front, the transition at the Federal Reserve — from Chair Powell to Kevin Warsh — has so far been absorbed calmly, with equity and bond volatility both declining in recent sessions. The Fed's path remains data-dependent, and this week's jobs report will be closely watched. Consensus expects the unemployment rate to hold near 4.3%, consistent with a "low hire, low fire" labor market. More interesting may be the wage data: softening wage growth could constrain consumer spending at a moment when the personal savings rate is already under pressure. Globally, the picture is more nuanced than a simple risk-on or risk-off framing suggests. European equities outperformed in May, while the ECB is now actively signaling the possibility of rate hikes in June — a stark contrast to the easing cycle many had anticipated a year ago. Emerging markets have staged a meaningful recovery, supported by AI infrastructure spending and a softer U.S. dollar. The macro divergences between regions are as wide as they have been in years, and that creates both risk and opportunity depending on how portfolios are positioned. Seasonality is worth noting as well. June has historically been a challenging month for equities in midterm election years, and after a sharp rally off the March lows, some degree of consolidation would not be surprising. Markets rarely move in straight lines, and the conditions for short-term choppiness — elevated geopolitical risk, a pivotal central bank meeting in Europe, key economic data releases, and a VIX that has returned to complacency — are present. The bottom line: the fundamental backdrop remains broadly supportive, earnings momentum is intact, and long-term investors have been well-served by staying disciplined. But the risks are real and the range of outcomes is wide. In an environment where traditional hedges are less reliable and geopolitics can move markets overnight, diversification, quality, and a clear-eyed view of one's own time horizon matter more than ever. As always, we are here to discuss how these dynamics relate to your specific situation. Please do not hesitate to reach out.
The first four months of 2026 have been a useful reminder that markets do not move in straight lines. After entering the year at record highs, U.S. equities pulled back sharply on geopolitical tensions tied to the Iran conflict, with the S&P 500 coming close to a ten percent decline before recovering much of that ground. Volatility has returned again on rising energy prices and a softer tone from the technology sector that has carried so much of this cycle’s leadership. Oil sits near one hundred dollars per barrel, the ten-year Treasury yield hovers near four and a half percent, and traditional diversification between stocks and bonds has been less reliable than many investors have come to expect. None of this changes our long-term view. It does sharpen a conversation we believe every household within ten years of retirement, on either side of that line, should be having right now. THE QUESTION THAT MATTERS MOST After more than thirty years of advising families through every kind of market, I have come to believe that one question matters more than almost any other in retirement planning. It is not what your average return will be. It is not even how much you have saved. The question is this: in what order will those returns arrive, and what will the portfolio be doing when they do? Two households can finish their working years with identical balances and identical long-term average returns. One can run out of money. One can remain wealthy for life. The only difference between them is the order in which good and bad years happened to fall. WHY ORDER MATTERS MORE THAN AVERAGE When a portfolio is accumulating, a market drop is something close to a gift. Contributions buy more shares at lower prices. When a portfolio is distributing, the same drop is a wound. Every dollar withdrawn during a downturn cannot participate in the recovery, and the base from which all future growth compounds is permanently smaller. Retirees who began withdrawals in 1973, in 2000, or in 2008 lived through outcomes quite different from those who retired even two or three years earlier or later. Same averages over the long arc. Very different lives for the family. THE RETIREMENT RED ZONE Retirement planning does not begin the year you stop working. It begins five to ten years before. We sometimes call that window the retirement red zone, and it is the period in which the wrong portfolio, held too long, can do real and lasting damage. A portfolio that served someone beautifully through their fifties is rarely the right portfolio for the first decade of withdrawals. Waiting until the retirement date itself to reposition is not a plan. It is a hope. HOW WE REPOSITION PORTFOLIOS Repositioning is a multi-year process, not a single trade. We model honest cash-flow needs in dollars. We construct one to three years of withdrawals in stable, liquid reserves so no client is ever forced to sell equities into a falling market. We build an intermediate layer of high-quality bonds to refill those reserves over time. We sequence withdrawals across taxable, traditional, and Roth accounts to manage lifetime tax cost, often using the years before Social Security and required minimum distributions for thoughtful Roth conversions. We rightsized concentrated and legacy positions over multiple tax years. And we stress test the plan against a meaningful market drop in year one before any client crosses the retirement line. A CLOSING THOUGHT Sequence risk is not really a math problem. It is a human one. The discipline to reposition during good markets, when it can feel almost unnecessary, is what separates retirees who sleep well from those who reach for the wrong decision at the worst possible moment. By the time a dramatic market drop arrives, the work either has been done or it has not. Whether you are a long-time client of Affinity Capital or considering a relationship with our firm, we would welcome a conversation about how your portfolio is positioned for the years ahead.