Second Quarter 2023 Market Commentary

July 20, 2023

“May You Live in Interesting Times”

 

This is a phrase that has been quoted for generations and appears to be a wish for a life of thought-provoking and distinctive experiences. However, it is typically used during times of uncertainty and disorder as opposed to peace and tranquility. We imagine that each generation has felt that it uniquely applies to them, and we are no different. To better frame our current “interesting” financial environment, we begin with the past.

We envision the perspectives and emotions of those who lived through historic periods such as our Revolutionary, Civil & World Wars, economic depression, social strife, and couple it with our most recent experiences such as the 2008 near collapse of our financial system, social upheaval, and a worldwide pandemic. But we must also appreciate the accomplishments when placed on the timeline of history. While acknowledging that much work remains, we do enjoy a level of economic prosperity unmatched in history. There is an abundance of food and agriculture never seen in history and medical advances that are nothing short of miraculous. For our part in the lives of our clients, we are grateful for the skills and modern resources we possess to function as stewards of your hard-earned assets.

H.P. Lovecraft, a twentieth century American writer said, “The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.”  While it may appear that in today’s world of mass communication, the fear of the unknown should be offset by our massive access to information. However, there is a distinction between information and wisdom.

With the continuing loss of our “Greatest Generation” who served during the “interesting times” of World War Two, we are left with the glamorized movies and literature of the battle of good and evil. The simplicity of good versus evil provided for a unity of purpose rarely experienced since. We contrast the clarity of a nation with a singular purpose to triumph over a clear evil, narrowly viewed with the media resources of the era to our current massive saturation of competing information manipulated by algorithms. Regardless of viewpoint, the mental strain and taxation in these current interesting times is unlike any in history. This includes the daily flood of financial news and information that can easily cloud our emotions and shake our confidence in long-term goals.

This brings us to our current interesting times in the financial markets and more specifically, your financial goals. The subjects mentioned above, the uniqueness of our individual perceptions, the societal perceptions of challenges and accomplishments, the fear of the unknown, how we receive and process information and the clarity we seek in this crowded information age all contribute to the confusion with which financial information is viewed. Market commentators routinely throw around concepts such as fear and greed and how instrumental they are in the behavior of individuals and the markets.

Benjamin Graham, published his timeless book “The Intelligent Investor” in 1949, and said that investing entails “a trait more of the character than the brain.” Warren Buffett, a devotee of Graham, once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”  Through 2023, news of Artificial Intelligence or AI has created a rush to a handful of stocks that have driven the markets forward. We believe in the power of AI going forward but we have remained more conservative in our overall view of the markets and economic conditions as we see our first duty as protective of the long-term health of our portfolios.

A Fragile Market:

The markets remain fragile and as investors we are leery of “chasing the market” as just ten U.S. large-cap companies have accounted for approximately ninety percent of stock market returns in 2023. This is not a healthy indicator for the broader stock market going forward.

The Federal Reserve has clearly stated a cautious outlook about inflation continuing to climb and they are sending a clear message conveying a hawkish outlook. We expect another rate hike following their July 25 th and 26th meeting. The purpose of raising rates is to slow economic activity which in turn reduces demand in an effort to bring inflationary pricing down.

The American consumer accounts for almost seventy percent of our Gross Domestic Product (GDP). Discretionary household income levels are down, borrowing in all areas has been dramatically dampened by high interest rates which in turn is causing stagnation in the housing market, which is a huge driver for economic activity. Credit card balances are rising as are credit card interest rates. Wages have grown but are not keeping pace with the rate of inflation.

The shadow of an economic slowdown, a recession, is a major concern. There is significant confusion in establishing consensus among market analysts and economist forecasts regarding whether a recession is coming and if so its length or severity.

While the definition of recession can vary among economists and politicians, a popular definition is when gross domestic product (GDP) has declined for at least two consecutive quarters. This occurred in 2022.

The classic sign of a pending recession is an inverted yield curve. It has been a year since the yield curve for Treasurys inverted, meaning short-term bonds are paying higher interest rates than long-term bonds. The disparity between most short and long bonds is the largest since 1981. At Affinity Capital, we have been purchasing U.S. Treasury Bills with a two-week maturity and receiving an extremely minimal risk, annualized return of over five percent, while a 30-year Treasury Bond barely reaches four percent.

Historically, an inverted yield curve has not always resulted in a recession … but … when a recession has occurred, it has always been preceded by an inverted yield curve. Since 1978, the yield curve has inverted six times and has preceded a recession each time.

Stagflation:

Inflation and recession ride a seesaw. This is where stagflation comes into play, a combination of high inflation and slowing economic activity. Last seen in the 1970’s, it is not a desirable path to navigate. Diversification into securities such as Treasury Inflation Protected Bonds and corporate bonds that are hedged against inflation are paying generous income while protecting your portfolios.

We exited our positions in small and mid-size companies last year at opportune times and are currently evaluating their attractiveness to add to our portfolios going forward. As mentioned previously, we believe the power of Artificial Intelligence is very real and are currently evaluating potentially attractive positions to enter.

We welcome your feedback and are always available to visit. Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

Patience Over Panic: Interpreting Today’s Fed Decision

January 28, 2026
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.

Markets, Geopolitics, and Recent Volatility

January 21, 2026
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.

The Policy Pivot: Key Takeaways for Investors

December 11, 2025
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