Second Quarter 2023 Market Commentary

July 20, 2023

“May You Live in Interesting Times”

 

This is a phrase that has been quoted for generations and appears to be a wish for a life of thought-provoking and distinctive experiences. However, it is typically used during times of uncertainty and disorder as opposed to peace and tranquility. We imagine that each generation has felt that it uniquely applies to them, and we are no different. To better frame our current “interesting” financial environment, we begin with the past.

We envision the perspectives and emotions of those who lived through historic periods such as our Revolutionary, Civil & World Wars, economic depression, social strife, and couple it with our most recent experiences such as the 2008 near collapse of our financial system, social upheaval, and a worldwide pandemic. But we must also appreciate the accomplishments when placed on the timeline of history. While acknowledging that much work remains, we do enjoy a level of economic prosperity unmatched in history. There is an abundance of food and agriculture never seen in history and medical advances that are nothing short of miraculous. For our part in the lives of our clients, we are grateful for the skills and modern resources we possess to function as stewards of your hard-earned assets.

H.P. Lovecraft, a twentieth century American writer said, “The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.”  While it may appear that in today’s world of mass communication, the fear of the unknown should be offset by our massive access to information. However, there is a distinction between information and wisdom.

With the continuing loss of our “Greatest Generation” who served during the “interesting times” of World War Two, we are left with the glamorized movies and literature of the battle of good and evil. The simplicity of good versus evil provided for a unity of purpose rarely experienced since. We contrast the clarity of a nation with a singular purpose to triumph over a clear evil, narrowly viewed with the media resources of the era to our current massive saturation of competing information manipulated by algorithms. Regardless of viewpoint, the mental strain and taxation in these current interesting times is unlike any in history. This includes the daily flood of financial news and information that can easily cloud our emotions and shake our confidence in long-term goals.

This brings us to our current interesting times in the financial markets and more specifically, your financial goals. The subjects mentioned above, the uniqueness of our individual perceptions, the societal perceptions of challenges and accomplishments, the fear of the unknown, how we receive and process information and the clarity we seek in this crowded information age all contribute to the confusion with which financial information is viewed. Market commentators routinely throw around concepts such as fear and greed and how instrumental they are in the behavior of individuals and the markets.

Benjamin Graham, published his timeless book “The Intelligent Investor” in 1949, and said that investing entails “a trait more of the character than the brain.” Warren Buffett, a devotee of Graham, once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”  Through 2023, news of Artificial Intelligence or AI has created a rush to a handful of stocks that have driven the markets forward. We believe in the power of AI going forward but we have remained more conservative in our overall view of the markets and economic conditions as we see our first duty as protective of the long-term health of our portfolios.

A Fragile Market:

The markets remain fragile and as investors we are leery of “chasing the market” as just ten U.S. large-cap companies have accounted for approximately ninety percent of stock market returns in 2023. This is not a healthy indicator for the broader stock market going forward.

The Federal Reserve has clearly stated a cautious outlook about inflation continuing to climb and they are sending a clear message conveying a hawkish outlook. We expect another rate hike following their July 25 th and 26th meeting. The purpose of raising rates is to slow economic activity which in turn reduces demand in an effort to bring inflationary pricing down.

The American consumer accounts for almost seventy percent of our Gross Domestic Product (GDP). Discretionary household income levels are down, borrowing in all areas has been dramatically dampened by high interest rates which in turn is causing stagnation in the housing market, which is a huge driver for economic activity. Credit card balances are rising as are credit card interest rates. Wages have grown but are not keeping pace with the rate of inflation.

The shadow of an economic slowdown, a recession, is a major concern. There is significant confusion in establishing consensus among market analysts and economist forecasts regarding whether a recession is coming and if so its length or severity.

While the definition of recession can vary among economists and politicians, a popular definition is when gross domestic product (GDP) has declined for at least two consecutive quarters. This occurred in 2022.

The classic sign of a pending recession is an inverted yield curve. It has been a year since the yield curve for Treasurys inverted, meaning short-term bonds are paying higher interest rates than long-term bonds. The disparity between most short and long bonds is the largest since 1981. At Affinity Capital, we have been purchasing U.S. Treasury Bills with a two-week maturity and receiving an extremely minimal risk, annualized return of over five percent, while a 30-year Treasury Bond barely reaches four percent.

Historically, an inverted yield curve has not always resulted in a recession … but … when a recession has occurred, it has always been preceded by an inverted yield curve. Since 1978, the yield curve has inverted six times and has preceded a recession each time.

Stagflation:

Inflation and recession ride a seesaw. This is where stagflation comes into play, a combination of high inflation and slowing economic activity. Last seen in the 1970’s, it is not a desirable path to navigate. Diversification into securities such as Treasury Inflation Protected Bonds and corporate bonds that are hedged against inflation are paying generous income while protecting your portfolios.

We exited our positions in small and mid-size companies last year at opportune times and are currently evaluating their attractiveness to add to our portfolios going forward. As mentioned previously, we believe the power of Artificial Intelligence is very real and are currently evaluating potentially attractive positions to enter.

We welcome your feedback and are always available to visit. Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

The Fed Holds Rates: What It Means for Investors

By Ashley Cowan • July 30, 2026
The Federal Reserve concluded its meeting by leaving short-term interest rates unchanged at 3.50% to 3.75%. The decision was widely anticipated and reflects the Fed’s continued effort to balance slowing inflation with an economy that remains remarkably resilient. The economic data released today helps explain that decision. The U.S. economy expanded during the second quarter, although at a more moderate pace than earlier in the year. While the headline growth rate slowed, the underlying picture remains encouraging. Consumer spending continued to be a significant driver of economic activity, businesses are still investing, and the labor market has remained healthy. Much of the slower overall growth appears to reflect temporary factors rather than a broad weakening of the economy. Inflation also continued to move in the right direction. Price pressures have eased considerably from their peak, although inflation remains above the Federal Reserve’s long-term target. That leaves policymakers in a position where they can afford to be patient while continuing to evaluate incoming economic data. Taken together, these developments suggest the economy is transitioning toward a more sustainable pace of growth rather than falling into recession. While risks remain, particularly from geopolitical events, government policy, and persistent inflation in certain sectors, the overall economic backdrop continues to be relatively constructive. For investors, this environment is likely to produce periods of market volatility. Financial markets constantly reassess expectations for interest rates, inflation, corporate earnings, and economic growth. Each new report has the potential to shift those expectations, resulting in short-term market swings. That is why it is important not to overreact to any single Federal Reserve meeting or economic report. History has repeatedly demonstrated that successful investing is built on discipline rather than prediction. Markets will always experience periods of uncertainty, but long-term investment success comes from maintaining a diversified portfolio that is aligned with your financial goals, risk tolerance, and time horizon. While today’s economic reports offer additional insight into where the economy may be headed, they do not change our investment philosophy. We continue to evaluate the broader economic environment, corporate earnings, valuations, and long-term trends rather than focusing on short-term headlines. The economy has slowed from the exceptionally strong pace of the past several years, but it continues to demonstrate resilience. Inflation has improved, interest rates remain restrictive, and the Federal Reserve has the flexibility to respond as new information becomes available. Those are all positive developments for investors seeking a more stable economic environment. As always, we will continue to monitor economic developments carefully and make thoughtful portfolio decisions when warranted. Our focus remains on helping clients achieve their long-term financial objectives, regardless of the latest headlines.

A Choppy Week Defined by Geopolitics, Resilient Data, and a Tech Comeback

July 9, 2026
Markets navigated a volatile week as escalating tensions between the United States and Iran collided with encouraging domestic economic data and renewed enthusiasm for artificial intelligence-related names. The result was a market that whipsawed day to day but ultimately showed underlying resilience — and one we monitored closely on your behalf throughout the week. Equities: Volatile but Holding Up Major indices experienced sharp intraday swings this week. The Dow Jones Industrial Average fell as much as 1.1% in a single session, dropping over 855 points at its intraday low, while the S&P 500 and Nasdaq Composite showed more mixed results, with the tech-heavy Nasdaq finishing higher on strength in AI-related names. Later in the week, sentiment improved meaningfully as a resurgence in technology companies powered a broader rebound, with the Nasdaq 100 adding roughly 1% and semiconductor stocks climbing around 4%. Chip names whipsawed, having sold off sharply earlier in the week before staging a partial recovery. We continued to track these swings across portfolios throughout the week and saw no cause for reactive changes. Geopolitics Remains the Dominant Wildcard The renewed conflict between the U.S. and Iran was the week's central story, and one we are following closely for downstream portfolio effects. The United States launched fresh airstrikes against Iran, and Tehran responded by targeting Gulf-region interests, following a breakdown of the fragile ceasefire that had been in place. This escalation had an immediate and direct economic effect: energy markets. Crude oil prices spiked sharply, with U.S. benchmark crude rising over 4% and global benchmark crude rising over 5% in a single session, briefly rattling equity markets and lifting energy-sector shares while pressuring more rate-sensitive corners of the market. We noted markets showing a degree of "shock fatigue" as the week progressed, looking past the headlines, though we remain attentive to the possibility of renewed volatility in oil and safe-haven assets should the conflict widen further. The Economic Backdrop Remains Constructive Away from the geopolitical noise, we continue to see an underlying economic picture that supports a "soft landing" narrative. Weekly initial jobless claims came in at 215,000, a six-week low and below economist estimates, reinforcing continued labor market strength. This follows a broader trend we have been tracking: monthly job gains so far in 2026 have averaged roughly 92,000, well above last year's pace, even as wage growth of about 3.5% year-over-year has remained contained rather than accelerating. This combination, steady hiring without runaway wage pressure, is exactly the kind of environment we believe the Fed wants to see as it weighs its next move. On the Fed itself, minutes from the June FOMC meeting showed officials remain divided on the path forward for rates, with inflation data likely to be the deciding factor going forward. Markets currently assign only about a 28% probability to a rate hike at the July meeting, and we are positioning our outlook accordingly, expecting the Fed to largely stay on hold in the near term. What We're Monitoring on Your Behalf Heading into next week, we are closely tracking the June CPI release and Fed Chair testimony scheduled for mid-July, along with the unofficial kickoff of Q2 earnings season as major banks begin reporting. We view corporate earnings as an important test of whether the strong AI-driven capital spending narrative can translate into sustained profit growth, with Wall Street currently projecting Q2 S&P 500 earnings growth in the low-to-mid 20% range, disproportionately driven by AI-related capital expenditure. We will continue to assess how these developments intersect with account positioning and will reach out proactively if we believe adjustments are warranted. Our Perspective Weeks like this are a good reminder that headline-driven volatility and underlying economic fundamentals often tell different stories. While geopolitical developments can create short-term turbulence — particularly through the energy channel — we continue to view the domestic labor market and corporate earnings backdrop as constructive. We remain engaged and continually monitoring client accounts through periods like this, and our focus stays on long-term financial goals rather than reacting to day-to-day headlines. Please don't hesitate to reach out with any questions about how these developments may affect your individual financial plan.

Market Update: Inflation, AI, and the Road Ahead

June 25, 2026
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.