Third Quarter 2022 Market Comment

The Federal Reserve concluded its meeting today by leaving interest rates unchanged, maintaining the current policy range as it continues to assess the evolving economic landscape. This decision reflects a deliberate pause after recent policy adjustments and underscores the Fed’s ongoing effort to balance progress on inflation with signs of moderation in economic growth. In its statement, the Federal Open Market Committee acknowledged that inflation has continued to ease from prior peaks, though it remains above the Fed’s longer-term objective. At the same time, economic activity has shown resilience. Consumer spending has held up, business investment remains uneven but stable, and labor market conditions, while cooling from earlier strength, continue to reflect solid underlying demand for workers. Wage growth has moderated, but employment levels remain elevated relative to historical norms. The Fed’s decision to hold rates steady signals a desire for greater clarity before making additional policy moves. Policymakers have emphasized that future decisions will be driven by incoming data rather than a predetermined path. This approach reflects the complexity of the current environment, where encouraging inflation trends coexist with pockets of economic strength that could slow further progress if policy is eased too quickly. For the broader economy, a steady policy stance provides near-term predictability. Borrowing costs remain elevated compared to the prior decade, but the absence of additional tightening reduces the risk of an abrupt slowdown. Households and businesses continue to adapt to higher rates, and the Fed appears focused on avoiding unnecessary pressure that could undermine growth while inflation is already moving in the right direction. From a market perspective, today’s decision reinforces a theme investors have been grappling with for months: patience. Markets have spent much of the past year adjusting expectations around the timing and pace of potential rate cuts. The Fed’s message suggests that while easing may occur in the future, it is unlikely to happen rapidly or without clear evidence that inflation is sustainably under control. As a result, market movements are likely to remain sensitive to economic data, particularly inflation reports, employment figures, and indicators of consumer demand. Importantly, the Fed also reaffirmed its commitment to maintaining restrictive policy until it is confident that price stability has been restored. This reinforces the idea that the central bank is prioritizing long-term economic health over short-term market comfort. While this stance can introduce periods of volatility, it also supports the foundation for more durable growth over time. Looking ahead, the economic outlook remains constructive but uneven. Growth is expected to continue at a more moderate pace, with cooling inflation and stable employment supporting consumer activity. At the same time, higher financing costs and tighter credit conditions may weigh on certain sectors, particularly those that benefited from ultra-low rates in prior years. This divergence underscores the importance of diversification and discipline within investment strategies. At Affinity Capital, we view today’s decision as consistent with a broader transition toward a more normalized economic environment. The era of emergency-level policy is firmly behind us, and the path forward is likely to involve incremental adjustments rather than dramatic shifts. Periods like this often reward investors who remain focused on long-term objectives, risk management, and thoughtful portfolio construction rather than short-term headlines. As always, we will continue to monitor economic developments closely and assess how changes in monetary policy may impact portfolios and financial plans. While uncertainty remains a constant in markets, a measured and intentional approach continues to be the most reliable way to navigate it.

Recent market headlines have been driven less by economic data and more by geopolitics. In particular, renewed discussion around Greenland and its strategic importance has introduced a new layer of uncertainty into global markets. Greenland matters not because of its size or population, but because of its location and resources. It sits at a critical crossroads between North America and Europe, plays an increasingly important role in Arctic shipping routes, and holds significant reserves of rare earth minerals that are essential for technology, defense systems, and energy infrastructure. As global competition for these resources intensifies, Greenland has become a focal point in broader strategic and trade discussions. Markets reacted quickly to this uncertainty. U.S. stock indexes moved lower in a broad selloff, with technology shares leading the decline. At the same time, investors shifted toward more defensive assets, pushing volatility higher, lifting gold prices, and pressuring risk-oriented assets such as cryptocurrencies. Similar caution was reflected in overseas markets as well. When geopolitical issues intersect with trade policy, markets tend to respond swiftly. Even the possibility of changes in tariffs, trade relationships, or diplomatic alignment can influence assumptions about global supply chains, corporate earnings, and economic growth. That is what markets have been digesting. These developments are now a regular part of the global environment. Markets today must absorb not only interest rates and earnings reports, but also geopolitical strategy, resource security, and shifting alliances. This can create short-term market adjustments as investors reassess expectations. Geopolitical uncertainty does not automatically translate into lasting economic damage. Markets have navigated trade disputes, diplomatic standoffs, and strategic realignments many times before. Over time, clarity emerges, negotiations evolve, and economic activity adapts. We continue to watch these developments closely and view them as part of the broader global backdrop in which markets operate. While the headlines may feel new, the underlying dynamic of markets responding to geopolitical uncertainty is familiar and expected. If you have questions about how global events fit into the bigger picture, we are always available to talk them through. Understanding the context behind the headlines is often the most effective way to stay grounded when markets react to evolving global issues.