Three Minute Digest for May 19, 2022 - Lost in Translation: Some Plain English Observations

May 19, 2022

The news media works to get our attention and hold it. Capturing the passions of a sporting event are formulated to perfection by the broadcast industry and by treating the market day as a sporting event, the goal of holding of our attention is achieved. And fear is a more powerful emotion then optimism. As your Financial Advisors, we seek to translate the industry jargon that so often confuses and worries you to plain English and describe what it means to you and your portfolios.

Recession

Media:   The question is whether we are in fact headed for a recession as defined by a period of temporary economic decline during which trade and industrial activity are reduced, identified by a fall in GDP in two successive quarters. We must debate if it will happen, when it will happen, how severe will it be and how long it will last.

Affinity Capital:   While we enjoy this professional financial industry discussion, what does it mean for you? Whether we pinpoint and document an official recession is of little use. Simply put, growth in our economy is slowing significantly and we do not see much light at the end of a short or a medium length tunnel.

We have been positioning your portfolios for this slowdown since January.

Predicting a Market Bottom

Media:   Economies and asset prices are interconnected in complex fashion, and relationships between them are constantly shifting. That is why even the most sophisticated fundamental models or pattern-recognition algorithms are incapable of reliable forecasts.  But none the less, we see an endless parade of prognosticators making reliable forecasts!

Affinity Capital: We never know a market top or bottom until it is written in history. It is most difficult to predict specific prices and time the markets, so we try move with the overall tides. We do develop price targets to be used as watch areas for both the markets and specific securities. Based upon our research, you have seen numerous sales in your portfolios in response to this falling market.

Our reinvestment strategy will involve a measured approach to reinvestment and includes some degree of confidence that the worst is behind us. It is reasonable to miss some reward to gain the benefit of limiting additional potential risk to the downside. As long-term investors, the question is whether we believe that markets will reach new highs in the future? The answer is yes, so our goal is to limit losses and find opportune times to buy and be rewarded going forward.

Is the Worst Behind Us?

Media: Did you realize that on average, less than 10% of publicly traded stocks have a sell rating by Wall Street Analysts? Wall Street firms realize considerable profit by providing financial advice for companies of all types, stock, and bond issuance, securing sources of funding, managing risk, and providing asset management services. There is little incentive to offend corporate clients with a less than desirable opinion of their stock nor provide investors in general with an outlook that would lead them to escape a market sell-off. It is in their best interest to keep their clients invested regardless of market conditions. With that said, it is difficult to find a consistent message for a consumer to adhere to. We want Affinity Capital to serve that need for you.

Affinity Capital:  

Recently there were a few days of market rallies. Last week we stated, “ While rebound rallies are likely, the trend is certainly down.”  Last week, the S&P 500 hit a low that was -20% off the market high achieved at the beginning of the year. A drop of -20% is understood to be “bear market” territory. Right now, we do not see any evidence that this is any more than a bear market rally spurred by hitting this level. We see little positive evidence of a recovering economy and think we are in the early innings of stagflation. See our recent market comment:   Three Minute Digest for March 31, 2022

While our prevailing opinion is one of caution, our ongoing preparation incorporates multiple scenarios and includes plans for a rising market.

As the Fed continues to raise interest rates this year, we recall an old market adage, “Don’t Fight the Fed.” The goal of raising interest rates is to slow growth and tame inflation. While there are always areas of the market in which to invest, the growth stocks that have led the markets higher over the years are most susceptible to rising rates. So, while rates are rising, many stock sectors will continue to be under pressure.

The war in Ukraine continues while the applications of Sweden and Norway to join NATO further troubles an irrational Russia. Meanwhile Interest Rates, Inflation, Energy Prices, and Supply Chain Disruptions all continue to negatively affect economic growth.

Our watch areas for the technology heavy Nasdaq see a potential drop of another -10%. We see a similar potential drop of -10% in the Dow Jones Industrial Average and a potential drop of -4% for the S&P 500. At that point, it will either be the bottom of this sell-off and a good point to invest or it is the top of the next downturn. You may see new investments in your portfolios but if the markets resume their downturn, we may quickly retreat. Last week we stated that “Navigating a market such as this is referred to as Trying to Catch a Falling Knife .”   This is a very accurate reference for this market!

As always, please feel free to call with any questions.   We very much appreciate your business.

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.