Three Minute Digest for March 31, 2022

April 21, 2022

As the first quarter of 2022 ends, our focus is on navigating higher inflation, rising interest rates, geopolitical turmoil, and lower economic growth projections as well as the ongoing recovery from the heights of the Covid pandemic.

The Russia/Ukraine war continues to wreak destruction on cities, infrastructure and especially the Ukrainian people. They have surpassed all expectations in slowing and in some instances halting the Russian advance yet comes at a great cost to millions of innocent families.

The destruction of Ukraine’s economy will be felt in the global economy as well. Ukraine has a large and highly educated consumer market and a cost-competitive workforce. A broad array of international investment has settled there including auto parts supply chain and technology. While their GDP, Gross Domestic Product, and standard of living has been low, it is due more to a less mature economy and corruption than economic activity itself. Ukraine is a world leader in natural resources with riches in uranium, titanium, manganese, iron ore, mercury, shale gas, and coal. They rank first in Europe as to arable land area and other riches include sunflowers, potatoes, barley, rye, corn, honey, and wheat.

In our January 26 th Digest , we stated, “Mixed signals abound within the question of whether Russia will make advances on Ukraine. ….. vast energy, mining, and agricultural resources. Disruption of these industries through further sanctions or military conflict would have serious repercussions for world markets.”  In our portfolios we sold international positions while maintaining positions in the energy and materials sectors.

Inflation and Rising Interest Rates

Inflation and rising interest rates will be a mainstay of our Affinity Capital Digests and Market Commentary throughout 2022. In January, the 10 Year Treasury yield began at 1.52%. As of today, it hovers around 2.40%. That is a 58% increase in just three months!

Treasury Yield Explained

Treasury bonds, bills or notes are debt instruments issued by the U.S. government. Any investor can buy a Treasury Bond and in return, they are paid interest or a rate of return, or yield. A comparable example may be a certificate of deposit. You may purchase a CD for $1000.00 that pays a rate of 2.40% for one year. At the end of the year, you receive your $1,000.00 back and keep the 2.40% as an interest payment which may also be referred to as the yield.

While there are specific definitions to many financial terms, for our purposes and ease of understanding the terms yield and interest rates are comparable.

Why does the value of my bond go down when interest rates go up?

Imagine a seesaw. As interest rates go up, the value of a bond goes down and vice-versa. An example is owning a bond worth $1000.00 that pays a 10% rate of interest and tomorrow, interest rates rise to 11%. You now have $1000.00 and want to purchase my bond. But why would you pay full price for my 10% bond when an 11% bond is available? My bond is now worth less and I must lower my price to encourage you to buy it.

To this end, our portfolios contain numerous strategies, including hedging and treasury inflation protected securities that work to protect the bond investments against rising rates. We have recently sold numerous municipal bond positions in which there are fewer portfolio management options to combat rising rates.

As always, please feel free to call with any questions. We appreciate your business! We thank you for your referrals and the confidence you place in us when referring family, friends, and business associates.

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.