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!

Market Pulse: “Shutdown Jitters, Gold Glitters, Oil Slips”

October 1, 2025
Markets are navigating a new U.S. government shutdown, softer recent labor signals, and sliding oil while investors keep one eye on the Fed’s path after its September meeting. Equities are mixed but near highs, leadership remains tilted toward technology with improving breadth, and defensive assets like gold are seeing renewed demand. What moved today (Oct 1) : After notching strong September and Q3 gains yesterday, with the S&P 500 up about 0.4 percent on September 30 and the Dow setting another record close, U.S. stocks were choppy this morning as the shutdown began. The Nasdaq and Dow traded slightly higher intraday while the S&P hovered near flat. Overseas, the FTSE 100 hit a record as healthcare shares rallied. Gold pushed to fresh records as investors hedged against policy and data uncertainty. Current events to watch: U.S. government shutdown: With funding lapsed, key economic releases may be delayed, including Friday’s jobs report. This muddies near-term visibility for the Fed and markets. Furloughs and suspended data flows could weigh on growth in the fourth quarter if the shutdown lasts. The Fed’s recent guidance: At the September 17 meeting, the Fed’s projections suggested a lower policy path into 2026 as inflation cools, keeping the possibility of additional rate cuts alive. August PCE inflation printed at 2.7 percent year-over-year, reinforcing a gradual disinflation trend heading into the final quarter of the year. Commodities reset: Crude oil has retreated into the low $60s (WTI) on talk of potential OPEC+ supply increases and a softer global manufacturing pulse. The EIA’s outlook anticipates further price softness as inventories build into early 2026, which could provide relief for consumers and businesses. Sectors and standouts: Technology and growth: The third-quarter rally was led by large technology companies, but participation broadened across more sectors, which is healthy for the durability of the uptrend. Elevated valuations mean earnings delivery remains critical in October. Defensives and healthcare: In Europe, healthcare leadership helped drive record U.K. index levels today. In the U.S., defensive sectors have provided ballast on volatile days as bond yields eased. Energy: Lower oil prices have weighed on energy shares but should ease input costs for transportation, consumer, and industrial companies if sustained. Why this is happening: Markets are balancing two forces. On one side is a soft-landing narrative with cooling inflation, prospects for additional Fed cuts, and resilient corporate earnings. On the other side is event risk from the government shutdown, murkier global growth, and shifting oil supply expectations. As long as inflation trends continue to drift lower and policy remains supportive, dips have been bought, but when data flow is disrupted, headlines can dominate. What it could mean next: Volatility watch: With fewer data releases if reports are delayed, markets may be more sensitive to headlines. Credit spreads and market breadth are worth watching since deterioration there would be an early warning sign. Rates and policy: Fed commentary and any clarity on funding negotiations may set the tone. Markets currently lean toward additional easing by year-end, and confirmation or pushback from officials can move both equities and rate-sensitive sectors. Oil and inflation: If crude remains subdued, disinflation into year-end is supported, which is constructive for risk assets as long as growth holds up. Bottom line : Despite today’s wobble, the overall trend remains constructive but sensitive to headlines. A diversified approach, focus on quality balance sheets, and disciplined rebalancing remain prudent as we enter a period where policy developments may matter more than usual data. 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.

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.