Year End Market Commentary

January 23, 2023

  • After three consecutive quarterly declines, U.S. stocks moved higher in the fourth quarter, but underperformed their international peers. Investors favored value – and cyclical – oriented segments of the market, which outperformed their growth peers by a considerable margin.
  • U.S. bond yields, as represented by the U.S. Aggregate bond Index, appear to have peaked as we approach the end of the Fed’s rate hike cycle, and the markets begin to price in potential cuts down the road.
  • Bond returns were positive in Q4, with lower rated, higher risk bonds posting the highest returns for the quarter.
  • International bonds posted positive returns, mostly due to the drop in the dollar and the accompanying rise in local currencies.
  • Commodities remained volatile amid a pullback in the U.S. dollar, optimism due to eased China Covid restrictions, and global recession concerns, while stabilization in interest rates fostered a rebound in REITS.

Job cuts and jobless claims paint a divergent picture - although the leading indicator of job cuts has picked up noticeably year over year, jobless claims have returned to near 2022 lows, from 650,000 to just over 200,000.

As for inflation, the long-term view suggests that previous surges in inflation were associated with unique events, some of which lasted for years. More active monetary policies have been in place since the early 1980’s, although it is uncertain whether the ultra-aggressive Fed actions can contain inflation in the near term. In the past, higher inflation correlated with weaker markets and economic gains. Goods oriented inflation continues to soften while services prices remain stubbornly sticky. Trends and leading growth indicators, such a money supply growth, are still favorable for a continued easing in price growth; however, the pace of the decline remains unclear.

With most markets hitting bear market territory this year, it is notable that bull markets have been longer in duration and greater in magnitude than bear markets, resulting in gains over time. This bear market has been driven by multiple compression, making valuations look compelling. Yet expected weakness in earnings may limit upside potential for equities. Continued high inflation may indicate that the market is trading gin an uncomfortably expensive zone.

It is important to remember that just five companies account for nearly 20% of the S&P 500’s market cap. While these companies significantly outperformed the overall market in the last two years, they also experienced a sharper pullback during the recent volatility.

At Affinity Capital, we have adopted a cautious approach in the last year, moving to cash easily to avoid significant market risk, investing in Treasury Inflation Protected Securities, and specifically investing in value driven, dividend bearing securities. The impact of dividends as an income generating security on total return is substantial. A hypothetical portfolio with dividend paying stocks invested over the last forty years with dividends reinvested grew sixty three percent over a price appreciation only portfolio.

We have also utilized tax efficient investing, using tax loss harvesting to our advantage with potential savings in taxes over the long run. Sector diversification has been important as variation in sector returns has offered opportunities for tactical tilts.

All of the above commentary about the challenging market this past year is important, and we focus on it every day. It really is one part of your financial picture.

When we sit at the table as part of a team with our client’s professional team, such as tax providers and estate attorneys, we are looking to the future. How will clients plan for their future and that of their families, such as aging parents? How will they sustain assets for a comfortable future? How will they provide for the multi-generational transfer of wealth?

When we adopted the tag line ‘Wealth Management for Life’ it was motivated by the belief that all of these parts are interconnected, and we genuinely enjoy assisting in the strategic vision of your future.

We appreciate the opportunity to collaborate with you and your family and look forward to working with you in the new year and beyond.

Happy New Year!

Please read our more in depth comment ‘Putting a Bow on 2022’ here . 

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.

What We're Watching This June — Market Thoughts for You

June 1, 2026
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 Order of Returns

April 29, 2026
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.