Three Minute Digest for May 11, 2022: Catch a Falling Knife | Affinity Capital

May 11, 2022

There is no straightforward way to describe the market sell-off we are experiencing as other than brutal. But we caution against equating your Affinity Capital portfolios with the overall markets. Your individual portfolios have held up well in relation to the major indices that are highlighted in the financial press.

Our portfolios currently average 30% in cash and throughout the year we have exited most specific sectors that have been hardest during this downturn. This includes international equities, traditional bond funds including investment grade and high yield corporate and municipal bond funds, small, mid, and large growth funds, and specifically the technology sector which are represented in the NASDAQ.

Why are the markets selling off?

There is little good news for the markets, including surging inflation, rising interest rates, geopolitical turmoil, lower economic growth projections and continued supply chain disruptions. In January, the 10 Year Treasury yield began at 1.52%. As of today, it hovers above 3.00%. That is an approximate 100% increase in a little over four months! The bond markets are often overlooked by investors as a key to evaluating future economic conditions as well as the health of the stock market.

See our Three Minute Digest for March 31, 2022 for an explanation of Treasury Yields.

Our Investment Toolbox

Affinity Capital utilizes a variety of tools to manage portfolios. In broad terms, we use both fundamental and technical analysis to evaluate both the markets and investments. A large contingent of money managers and especially mutual fund managers are singularly focused only on growth or value and growth stocks are leading the sell-off. We have sold our primarily growth-oriented positions. Why focus on a specialty in growth when growth is out of favor? We do believe that growth will again be an attractive area in which to invest and with 30% in cash, we are ready … but why ride it down?

Our use of Fundamental Analysis includes assessing the value of a security relative to its peer group or to the markets. We also evaluate the economic outlook as a whole. These are just two examples of dozens and even hundreds of available data points available for review.

Technical Analysis or Charting involves looking at statistical trends, such as movements in a stock's price and the number of shares trading. It is evaluating the supply and demand of a security. Are more people buying or are more people selling? Again, there are hundreds of data points and methods to utilize.

During a market selloff, we rely heavily on technical analysis. As you have seen by the sell confirmations you have received, we have been both reducing and/or outright selling weak positions since the start of the year. As mentioned, with an elevated level of cash we look to take advantage of reinvesting at what we believe will be opportune times.

Catch a Falling Knife

Going forward we obviously see more volatility. While rebound rallies are likely, the trend is certainly down. The technology heavy Nasdaq has been the main source of trouble as it is primarily growth stocks, and they are the first casualties of a double dose of surging inflation and slowing growth. The Nasdaq is down over (25%) for the year, and we believe a further (8%) decline is likely. At that point, it will either be the bottom of this sell-off and a good point to invest or it is the top of the next downturn. You may see new investments but if the markets resume their downturn, we may quickly retreat. Navigating a market such as this is referred to as “Trying to Catch a Falling Knife.”

As always, please feel free to call us with any questions.

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.

Fed Moves and Market Trends | Affinity Capital

August 6, 2025
Markets entered the week with a boost of optimism, fueled by softer labor data and growing chatter that the Federal Reserve might be leaning toward a rate cut this fall. But that optimism didn’t last long . As the week unfolded, economic uncertainty returned to center stage: fresh concerns about tariffs, underwhelming corporate earnings in some sectors, and signs of consumer fatigue in key parts of the economy tempered the early enthusiasm.

Weekly Market Update: Stability Amid Data and Tariff Jitters | Affinity Capital

July 17, 2025
This week’s stock markets were marked by tight trading ranges, record-setting highs in tech, and a backdrop of macro uncertainty. The S&P 500 (through SPY), Nasdaq (QQQ), and Dow (DIA) eked out modest gains, shrugging off headline volatility tied to Fed independence concerns and escalating tariff threats.