Positioning to Protect Your Assets

October 30, 2023

Stocks are weak and the S&P 500 has entered a correction after sliding 10% from its July peak.

A nice rally in the second quarter in the so-called "Magnificent Seven" stocks – Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta Platforms (Facebook) – have driven nearly all of the stock market gains this year.  Since their July peak they have lost more than $1.3 trillion in market value.

Without these seven stocks, there is virtually no return on other big stocks as a group and the small, medium and international stock sectors are all quite weak. If a move in the stock market shows broad movement across a wide swath of stocks, then it’s thought to be strong. Trends supported by just a handful of influential stocks tend to be weak. In a popular analogy for the latter scenario, technical analysts might say that the generals, being the seven largest technology stocks, are charging while the soldiers, most other stocks, are in retreat.

Affinity Capital sees an overall weak market ahead though not without some bear-market rallies. In our efforts to protect your hard-earned assets, we have been extremely conservative this year. We have positioned out portfolios for market weakness. On Thursday, the Dow was down 251 points, while the S&P 500 lost 1.2%. While another steep fall for Big Tech sent the Nasdaq composite to a market-leading loss of minus 1.8%.  Our average loss for Affinity Capital Portfolios was less than one-tenth of a percent. Our lower balance portfolios contain more equities due to their size and were down just over one-half of a percent.

Your portfolios do have funds that hold the large tech stocks mentioned above, but again we have been skeptical of the markets all year and hold a large position of income-producing securities that help protect against rising interest rates. As you have seen from recent transaction confirmations, we have purchased “risk-free” U.S. Treasury Bills that mature in ten days for an annualized yield of over 5.32%.

The fact that we can obtain over 5.32% for ten days versus a ten-year Treasury yielding less than 5.00% is telling us that the bond market is quite concerned about our economy. We have learned that ignoring the voice of the bond market as well as money supply levels and other economic signals is never a good idea.

There is conflicting data regarding US inflation with some showing that inflation cooling at a faster rate than predicted, and additional data pointing the other way. The Federal Reserve’s preferred measure of underlying inflation accelerated to a four-month high in September as consumer spending picked up. Still, the Fed is expected to keep its finger on the pause button when it meets to discuss interest rates this week.

The purpose of higher interest rates is to slow consumers from consuming. Through most of eleven rate hikes, consumers have shown very little appetite to slow down – until now.  Demand for big-ticket items is softening. Shoppers are increasingly shunning boats, refrigerators and other expensive goods, and this softening trend will likely accelerate through most goods and services.

As 70% of our GDP (Gross Domestic Product) is driven by the consumer, this slowdown in spending provides a higher likelihood of a recession in 2024. As previously mentioned, conflicting data regarding both inflation and recession is not healthy.

As the price of oil continues to rise, the instability of Washington politics continues and the events in Ukraine/Russia and Israel/Gaza escalate, we will continue to monitor data and events that affect your portfolios and act in your best interest. Remember that we are relatively long-term investors, and we understand that markets cycle throughout history so will seek opportunities as they arise.

We appreciate the opportunity to assist you with your financial needs. As always, please feel free to call anytime.

 

 

 

The Policy Pivot: Key Takeaways for Investors

December 11, 2025
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Finishing 2025 Strong: Key Trends to Watch

December 1, 2025
As we move into the final month of 2025, markets are adjusting to a new mix of encouraging economic trends and lingering uncertainty. November ended on a softer note, but December has opened with improved sentiment, clearer expectations around Federal Reserve policy, and a more confident tone in both equity and fixed income markets. Investors are watching these shifts closely, and the weeks ahead will help determine how the year ultimately finishes. At Affinity Capital, we continue to see an environment supported by quality leadership, steady earnings, and more attractive income opportunities. At the same time, late-cycle pressures and uneven economic data remind us that thoughtful risk management remains essential. A More Constructive Tone to Start December December began on firmer footing after several weeks of mixed performance. The most significant driver has been the market’s growing conviction that the Federal Reserve is getting closer to the start of a rate-cutting cycle. Current pricing suggests a meaningful chance of a cut in the near term, which has helped lift sentiment across equities and high-quality bonds. This optimism has also supported areas that tend to benefit from lower yield expectations, such as precious metals and rate-sensitive parts of the market. While not a guarantee of what comes next, the shift toward more accommodative policy expectations has created a more balanced backdrop than we saw earlier in the fall. Economic Data Remains Mixed Despite the improved tone, the incoming data continues to show pockets of weakness. Manufacturing activity has contracted for another month, hiring momentum has slowed, and consumer spending has moderated from its pace earlier in the year. The recent government shutdown delayed several economic releases, and the catch-up process has added some short-term noise to the data stream. What stands out is the contrast between a resilient corporate earnings picture and a softer macro environment. Many large companies continue to report healthy margins and steady demand, yet the broader economic indicators suggest that growth is losing some steam. This type of divergence is typical in late-cycle phases and often results in more frequent market swings. Volatility Has Picked Up After months of historically low volatility, markets have begun to experience more frequent fluctuations. Concerns around artificial intelligence valuations, regional banking stress, and geopolitical developments have all played a role. Volatility is not necessarily a sign of structural weakness, but it is a reminder that investors should expect a less predictable finish to the year. For diversified portfolios, these swings can create opportunities to rebalance, harvest gains, or add exposure to areas that have repriced more attractively. They also highlight the importance of high-quality holdings that can withstand periods of uncertainty. Opportunities Across Equities and Fixed Income Even with the mixed data backdrop, the overall investment environment remains constructive for long-term investors. High-quality U.S. companies with strong balance sheets and consistent earnings continue to provide stability at the core of portfolios. Select small-cap and mid-cap companies have also begun to show signs of improvement as rate expectations shift. In fixed income, today’s yields offer significantly more value than they did for much of the past decade. Bonds once again contribute meaningful income, and the possibility of lower rates in 2026 creates potential for price appreciation in high-grade credit. This combination strengthens the case for balanced portfolios that include both equities and fixed income. Positioning Into Year-End Given the current landscape, we believe the market is moving toward a finish that is neither overly exuberant nor overly cautious. Several key themes are likely to guide performance over the coming weeks. Quality leadership continues to play an important role, especially in sectors tied to innovation, cloud infrastructure, and digital transformation Broad market exposure remains valuable in capturing the benefits of seasonal strength and earnings resilience Dividend-oriented and defensive holdings support stability in late-cycle environments High-quality bonds offer attractive income and diversification benefits Small-cap and mid-cap allocations may provide long-term upside as rate expectations shift Looking Ahead As the year comes to a close, investors are balancing two realities. On one side, there is growing optimism around potential rate cuts, resilient corporate earnings, and improving seasonal patterns. On the other side, there are signs of slowing economic momentum, higher volatility, and continued geopolitical uncertainty. The result is a market that rewards discipline, diversification, and a focus on long-term goals. At Affinity Capital, our approach remains steady. We continue to emphasize high-quality holdings, balanced allocations, and thoughtful adjustments based on data rather than emotion. The coming months will bring new information, but the principles that guide long-term success remain unchanged. We are here to help clients stay aligned with their plans and positioned with confidence as we move into a new year.

Fed Cuts Rates: What It Means

October 29, 2025
The Federal Reserve announced today that it is cutting interest rates by a quarter of a percentage point, bringing the federal funds target range down to 3.75% to 4.00% . While it may sound like just another number, this decision carries real implications for the economy and financial markets. Why the Fed Made This Move The Fed has two primary goals: keep inflation under control and support a healthy job market. Over the last year, much of the focus has been on the first goal. Inflation has been stubborn, running higher than the Fed’s 2% target. Now, however, concerns about the job market are moving to the forefront. Hiring has slowed, and the Fed has acknowledged that risks to employment are rising. With economic data disrupted by the government shutdown, the central bank is working with incomplete information. In that uncertainty, officials chose to act in what they call a “risk management” mode, providing a bit of cushion for the economy. What This Means for the Economy Borrowing and Spending Lower rates typically filter into lower borrowing costs for businesses and households. That can mean slightly cheaper loans, credit cards, and mortgages. We have already seen mortgage rates dip in anticipation of this move, and that could provide some relief for homebuyers. Business Investment When financing is less expensive, businesses are more likely to expand, invest, and hire. The Fed hopes this cut provides enough encouragement to keep the labor market steady. The reality, however, is that a single quarter-point cut may only have a modest impact unless overall demand in the economy improves. Inflation Still in the Picture The challenge is that inflation has not gone away. By easing policy while prices are still running above target, the Fed runs the risk of letting inflation flare up again. That balancing act—supporting jobs without reigniting inflation—will be the key tension in the months ahead. Housing and Consumers The housing sector is especially sensitive to changes in interest rates. Builders and buyers often respond quickly when financing costs move even a little lower. At the same time, for households carrying debt, lower rates can make it easier to manage payments or refinance. But if wages stagnate or unemployment rises, those benefits may be limited. Markets and Volatility Markets had largely anticipated this cut, so the bigger story is what happens next. Investors are already debating whether this will be the first of several cuts, or just a one-off adjustment. That uncertainty often creates volatility in both stocks and bonds. The Bigger Picture The Fed has made it clear that there is no preset course. Officials will continue to watch the data and adjust policy as needed. That means future moves could go in either direction depending on whether inflation proves sticky or the job market weakens further. What does this mean in practical terms? It means we are entering a period where the Fed may be more reactive than proactive. Each new employment report, inflation reading, or sign of economic strength or weakness will take on outsized importance. Our Perspective For clients, the most important takeaway is that the Fed is signaling greater concern about the labor market, even as inflation remains above target. In other words, the economy is at a delicate point. The rate cut should provide some near-term relief, but it is not a magic fix. We are watching several key areas closely: The pace of hiring and unemployment trends Inflation data to see if price pressures start to ease or flare back up Housing activity, which could pick up if mortgage rates continue to drift lower The Fed’s move today is best seen as a stabilizing step. It shows policymakers are willing to provide support if needed, but it also highlights just how uncertain the path forward is. Periods like this can create noise in the markets, but they also underscore the value of staying focused on long-term goals. Our role is to keep a steady eye on developments, evaluate the implications, and make thoughtful decisions on your behalf. As always, we will continue monitoring the Fed’s actions and the broader economy, and we will keep you updated as the situation evolves.