A Roller Coaster Market of Inflation Fears and International Concern

April 21, 2022

As we entered the final months of trading for last year, we asked the question, “Have we seen the market highs for the year?”  Our estimation at the time was, “We are going to lean to an answer of … yes.”  The markets did find new highs. See our comment here: www.affinity-cap.com/blog-01/two-questions-about-market-today

The following month we stated, “We are pleasantly surprised by the strength of the stock market and have maintained our portfolio allocations to participate in these gains even though we have numerous concerns that we highlighted last month.” We explained our belief that companies buying their own stock in huge quantities was artificially propping up the markets: www.affinity-cap.com/blog-01/newtons-laws-motion-rising-markets-share-buybacks-0

We also said that we believe that inflation and rising interest rates are the primary issues on which the markets will focus.

Other issues included COVID, inflation, semiconductor chip shortages, goods shortages due to supply chain disruptions, Chinese regulatory crackdowns, the U.S. debt limit, … Federal Reserve tapering of interest rate risk and rising oil prices.

We also asked the question, “are we facing a long list of worry or opportunity?” First, we believe part of our job is to worry for you so you can sleep better at night. We are always concerned about what might affect your portfolios and then try to minimize those concerns. In the short term, we do see challenges that should be monitored. As for opportunities, they may be more difficult to realize going forward. As of today, we believe that the markets will be challenging through the mid-term elections on November 8, 2022.

We were in fact correct in our beliefs at the end of last year, just a bit early in our call.

One of our key concerns for over a year has been inflation and rising interest rates. We add a current concern of the situation with Russia and Ukraine as well as the opportunity China may exploit regarding Taiwan.

Inflation and Rising Interest Rates

There are two key barometers which Wall Street investors monitor closely. One is the yield on the 10-year Treasury note. The 10-year Treasury note is a debt obligation -think of a bond or a certificate of deposit - issued by the United States government with a maturity of 10 years. It pays interest at a fixed rate or yield.  

The 10 Year yield started in January at 1.52%. Last week it had spiked to 1.87%. While the numbers may appear small, that is an increase of 22% in just a few weeks and the expectation is that it may go higher. This is confirmation of inflation fears that we all see each day in the prices of gas, food and most everything consumers and businesses purchase. A little inflation means a growing economy, an elevated level of sustained inflation equals a host of problems for our economy. Right now, it is the fear of future uncontrolled inflation that is so concerning to the markets.

The second key barometer of inflation and rising interest rates is The Federal Open Market Committee or the FOMC. This is the branch of the Federal Reserve System whose mission is to promote stable prices and economic growth. Simply put, the FOMC manages the nation's money. The twelve members of the FOMC meet eight times a year to discuss whether there should be any changes to near-term monetary policy.

As their mission to promote stable prices involves fighting inflation, their actions are closely monitored by the markets. It is forecasted that the FOMC members may vote to raise rates as many as three times this year in an effort to slow the rate of inflation.

Russia and Ukraine / China and Taiwan

Mixed signals abound within the question of whether Russia will make advances on Ukraine. In 2014, Russia moved into parts of Ukraine and still maintains control of key areas. Russia sees Ukraine and all the satellite countries of the former USSR as traditional and historic pieces of their homeland. Russia fears that Ukraine or other bordering countries may be invited to join The North Atlantic Treaty Organization, NATO, which has agreements to defend any member countries against aggression.

Russia has vast energy, mining, and agricultural resources. Disruption of these industries through further sanctions or military conflict would have serious repercussions for world markets.

At the same time, China has increased their verbal rhetoric and their military activities around Taiwan. The question of Taiwan’s sovereignty from China dates to 1949 although it is a long and complicated history. Taiwan is a rare case in which Washington has a security partnership  with an entity with which it does not have diplomatic relations.

Our response for much of the past year regarding inflation and economic concerns has been to lean towards value versus growth and focus on traditional guards against inflation such as financials, interest-rate hedged bond funds, a REIT fund, or Real Estate Investment Trust, and energy. We also have an allocation to Treasury Inflation-Protected Bonds although this is an investment in which the name implies an obvious solution to rising rates, but the mechanics of these securities are a bit more complicated and require close monitoring.

Here in 2022, we have sold our international fund, sold our remaining position in small cap growth as well as our Nasdaq mid-cap fund and maintained a higher level of cash that will serve us well if this market volatility continues. We added to our technology heavy Nasdaq position as it weakens and may add more if it falls to another key support level.

In our evaluation of the more technical aspects of the buying and selling in the markets, we see some key breakdowns in numerous areas. While we could see buyers come into this market looking for bargain days, we remain cautious and watchful.

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.