Three Minute Digest for August 30, 2022

August 30, 2022

A teenager lost a contact lens while playing basketball in his driveway. After a brief, fruitless search, he gave up. His mother took up the cause and within minutes found the lens.

“How did you do that?” he asked.

“We weren’t looking for the same thing,” she explained. “You were looking for a small piece of plastic. I was looking for $150.”

Cash has been a substantial asset class in our portfolios. We have taken much of the risk out of your portfolios and still posted appreciable returns against the indices. There remains concern for the health of the markets going forward.

Affinity Capital pays attention to the entire concept of investing as a whole, but just as the teenager was looking for a small piece of plastic, the mother was looking for its value just as we are looking at your entire financial life rather than a single impressive monthly or quarterly account statement. We all want to make money every day the market is open, but the goal is to achieve your lifetime financial goals.

A cash position is not of little strategic value in a portfolio. We believe that timing the market for long-term success is fraught with difficulty and we do not advocate this strategy. Increasing cash balances during obvious periods of market declines and significant economic uncertainty is prudent and has served us well. This is especially true as both stock and bond markets have declined in a period of economic “stagflation” not seen in fifty years.

There were rallies off the market lows and they came in two stages:

  1. The first was “short-covering” or gaining as the price declines.
  2. The second stage is investor money that was afraid of missing something and jump in. This is when emotion overcomes process and faith in investing.

There were three technical watch areas that we monitored during this rally from the market lows. These rallies had enough strength to reach the third level. The market did in fact reverse direction upon reaching our third level. We believe there is more long-term information about where and when to invest going forward especially after the Fed comment Friday from Jackson Hole.

The uptrend in the market broke last week and the Dow has sold off more than one thousand points. Our continuing belief is that this is a break in the bear market rally and the technical data points we interpret have been correct so far. The longer-term trend remains down! This market cycle will be measured over the next 12 to 24 months, at a minimum. Our present level of capital preservation mode is prudent.

We are in a position to evaluate levels in which to invest but overall, they are not encouraging. Nor do our fundamental tools such as economic data and corporate earnings provide a very inviting scenario for investing. The markets are forward looking but for now we see little optimism for next year. The Federal Reserve meetings centered around raising interest rates and the mid-term elections in November will be telling pivot points for the rest of 2022. Last week we added a 10% position of short-term Treasury Inflation Protected Securities, and we will continue to evaluate further opportunities.

We believe the best-case scenario is for the market to be stagnant going forward. Our Indicators tell us that breaking through the bear market rally and going higher is less probable. The likelihood of the markets falling all the way back down and lower remains a real concern. Cash is prudent yet a difficult choice to make.

Thank you for the opportunity to serve you and your family.

Fed Makes First Cut—Markets React with Hope and Caution

September 17, 2025
The big news today: the Federal Reserve cut interest rates by 25 basis points , lowering the federal funds target range to 4.00%–4.25% . This is the first rate cut since 2023, and it marks what could be the beginning of a new easing cycle. Chair Powell acknowledged that the labor market is showing signs of strain —job growth has slowed, unemployment has edged higher—while inflation, though still above target, has been gradually moderating. One member of the committee even pushed for a larger 50-point cut, underscoring the growing concern about keeping the economy on stable footing. Markets largely anticipated this move, and that helped set the tone for the week. The S&P 500 and Nasdaq hit new record highs earlier in the week , reflecting investor optimism that lower rates will support growth. Small-cap stocks also enjoyed a bounce, showing that confidence wasn’t limited to the mega-cap names. At the same time, Treasury yields fell toward 4% before inching back up, a sign that bond investors are weighing both the near-term relief of rate cuts and the longer-term risk that inflation remains sticky. Economic data released this week helped frame the Fed’s decision. August inflation readings came in a touch hotter than expected , with headline CPI up 2.9% year over year and core inflation at 3.1%. Those numbers are still above the Fed’s target, but not high enough to derail its decision to pivot toward easing. Meanwhile, energy prices moved higher on global supply concerns, giving the energy sector a lift, while technology—especially companies tied to AI—continued to outperform. Beyond the numbers, politics are adding a layer of uncertainty. Recent controversies around Fed appointments and legal challenges to sitting governors have raised questions about the central bank’s independence. Markets are watching closely to see whether these distractions influence policy direction. Globally, other central banks, including Canada’s, have also begun shifting to more accommodative stances, reinforcing the sense that the next phase of policy is easing across major economies. So what does this mean looking ahead? Markets could see more upside in the short run , especially in interest-rate sensitive areas like housing and consumer spending. But investors should also prepare for continued volatility —each new jobs or inflation report has the potential to swing sentiment quickly. If inflation proves stickier than hoped, long-term Treasury yields could rise even as short-term rates fall, a dynamic that might pressure parts of the financial sector. In short, the path ahead is unlikely to be smooth, but the Fed has signaled it is prepared to act again, with two additional cuts projected before year-end. Bottom line : The Fed has taken its first step toward easing, reflecting concerns about growth while balancing persistent inflation risks. Markets are encouraged, but optimism remains cautious as investors adjust to a more complex mix of risks and opportunities. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to Wealth Management for Life —providing enduring guidance for you and your family’s financial success.

What’s Happening in the Market—and What It Means for You

September 4, 2025
The market’s summer calm may be giving way to a more dynamic period. In the weeks ahead, jobs data, inflation reports, tariff developments, and Federal Reserve policy decisions will dominate the investment landscape. With the S&P 500 now more than 90 days removed from a 2% decline—the longest such run since mid-2024—the stage is set for renewed volatility. September has historically been the market’s weakest month, averaging a 0.7% decline over the past 30 years. Four of the last five Septembers ended lower. A correction of 5–10% this fall would not be surprising and could, in fact, set the stage for a stronger year-end rally. Key drivers include: Federal Reserve policy — easing inflation may open the door to rate cuts, while strong job growth could delay them. Volatility Index (VIX) — at unusually low levels, suggesting complacency and the potential for sharper reactions to new developments. Triple witching expirations — adding short-term trading pressure this September. Despite these factors, the macro environment remains supportive. Earnings resilience, healthy economic growth, and investor confidence underpin the outlook. Elevated valuations are best understood as a reflection of optimism about future earnings, particularly in sectors leading innovation. Our perspective: We expect choppier markets in the near term, but remain constructive on equities for year-end. We continue to focus on portfolio resilience, opportunistic rebalancing, and selective positioning in areas where growth prospects justify higher valuations. For investors, discipline and perspective are essential. Volatility is not an enemy—it is an inevitable part of capital markets and often a source of opportunity. At times like these, it’s important to remember that markets move in cycles—but your goals remain constant. Our role is to help you stay focused, avoid distractions, and make thoughtful adjustments as opportunities and risks arise. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to Wealth Management for Life —providing enduring guidance for you and your family’s financial success.

Signals from the Fed: Inflation, Growth, and What Comes Next

August 22, 2025
It was a Fed-heavy week, with three major developments that matter for markets and the economy. FOMC minutes (July 29–30) — released Wednesday (Aug. 20). The minutes reinforced a data-dependent stance : participants saw continued progress on inflation but noted that risks aren’t one-way, citing pockets of labor-market cooling and the growth impact of tighter financial conditions. Policymakers emphasized flexibility and the need to see inflation moving durably toward 2% before declaring victory. For investors, the takeaway is that the bar for rapid policy shifts remains high, but the Committee is clearly keeping both sides of the mandate in view. Weekly balance sheet (H.4.1) — released Thursday (Aug. 21). The Fed’s weekly statement showed the usual moving pieces: securities holdings, reserve balances, and program usage. While week-to-week changes can be noisy, the release remains a useful pulse on system liquidity and the runoff of the Fed’s portfolio under quantitative tightening . Markets watch aggregate reserves and Treasury General Account flows because they can nudge front-end rates and funding conditions at the margin. Jackson Hole — Chair Powell’s Friday address. At the Kansas City Fed’s annual symposium, Chair Powell underscored that policy decisions will continue to be guided by incoming data . He highlighted the balance between sustaining expansion and finishing the job on inflation , noting tariff-related price pressures and supply-chain considerations among factors being monitored. The message: no preset path, but openness to adjust as evidence accumulates. Historically, Jackson Hole is more about long-term framework and risk management than near-term moves, and that tone held this year. What it means for the days ahead Near-term market drivers will be how inflation and labor data align with the Fed’s “proceed carefully” posture. • If inflation continues to edge lower while growth holds steady, the door stays open to gradual policy easing later this year. • If price pressures re-accelerate—or if hiring slows more sharply than expected—the Fed may extend its wait-and-see approach. Liquidity dynamics from the Fed’s balance sheet runoff will remain a background factor , but the central story is still inflation’s glide path and the durability of demand . Investors should expect choppy trading around key data releases , with markets pricing probabilities rather than certainties. As always, we welcome your questions and are here to support you . At the heart of everything we do is our commitment to “ Wealth Management for Life ”—providing enduring guidance for you and your family’s financial success.