Three Minute Digest for May 19, 2022 - Lost in Translation: Some Plain English Observations

May 19, 2022

The news media works to get our attention and hold it. Capturing the passions of a sporting event are formulated to perfection by the broadcast industry and by treating the market day as a sporting event, the goal of holding of our attention is achieved. And fear is a more powerful emotion then optimism. As your Financial Advisors, we seek to translate the industry jargon that so often confuses and worries you to plain English and describe what it means to you and your portfolios.

Recession

Media:   The question is whether we are in fact headed for a recession as defined by a period of temporary economic decline during which trade and industrial activity are reduced, identified by a fall in GDP in two successive quarters. We must debate if it will happen, when it will happen, how severe will it be and how long it will last.

Affinity Capital:   While we enjoy this professional financial industry discussion, what does it mean for you? Whether we pinpoint and document an official recession is of little use. Simply put, growth in our economy is slowing significantly and we do not see much light at the end of a short or a medium length tunnel.

We have been positioning your portfolios for this slowdown since January.

Predicting a Market Bottom

Media:   Economies and asset prices are interconnected in complex fashion, and relationships between them are constantly shifting. That is why even the most sophisticated fundamental models or pattern-recognition algorithms are incapable of reliable forecasts.  But none the less, we see an endless parade of prognosticators making reliable forecasts!

Affinity Capital: We never know a market top or bottom until it is written in history. It is most difficult to predict specific prices and time the markets, so we try move with the overall tides. We do develop price targets to be used as watch areas for both the markets and specific securities. Based upon our research, you have seen numerous sales in your portfolios in response to this falling market.

Our reinvestment strategy will involve a measured approach to reinvestment and includes some degree of confidence that the worst is behind us. It is reasonable to miss some reward to gain the benefit of limiting additional potential risk to the downside. As long-term investors, the question is whether we believe that markets will reach new highs in the future? The answer is yes, so our goal is to limit losses and find opportune times to buy and be rewarded going forward.

Is the Worst Behind Us?

Media: Did you realize that on average, less than 10% of publicly traded stocks have a sell rating by Wall Street Analysts? Wall Street firms realize considerable profit by providing financial advice for companies of all types, stock, and bond issuance, securing sources of funding, managing risk, and providing asset management services. There is little incentive to offend corporate clients with a less than desirable opinion of their stock nor provide investors in general with an outlook that would lead them to escape a market sell-off. It is in their best interest to keep their clients invested regardless of market conditions. With that said, it is difficult to find a consistent message for a consumer to adhere to. We want Affinity Capital to serve that need for you.

Affinity Capital:  

Recently there were a few days of market rallies. Last week we stated, “ While rebound rallies are likely, the trend is certainly down.”  Last week, the S&P 500 hit a low that was -20% off the market high achieved at the beginning of the year. A drop of -20% is understood to be “bear market” territory. Right now, we do not see any evidence that this is any more than a bear market rally spurred by hitting this level. We see little positive evidence of a recovering economy and think we are in the early innings of stagflation. See our recent market comment:   Three Minute Digest for March 31, 2022

While our prevailing opinion is one of caution, our ongoing preparation incorporates multiple scenarios and includes plans for a rising market.

As the Fed continues to raise interest rates this year, we recall an old market adage, “Don’t Fight the Fed.” The goal of raising interest rates is to slow growth and tame inflation. While there are always areas of the market in which to invest, the growth stocks that have led the markets higher over the years are most susceptible to rising rates. So, while rates are rising, many stock sectors will continue to be under pressure.

The war in Ukraine continues while the applications of Sweden and Norway to join NATO further troubles an irrational Russia. Meanwhile Interest Rates, Inflation, Energy Prices, and Supply Chain Disruptions all continue to negatively affect economic growth.

Our watch areas for the technology heavy Nasdaq see a potential drop of another -10%. We see a similar potential drop of -10% in the Dow Jones Industrial Average and a potential drop of -4% for the S&P 500. 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 in your portfolios but if the markets resume their downturn, we may quickly retreat. Last week we stated that “Navigating a market such as this is referred to as Trying to Catch a Falling Knife .”   This is a very accurate reference for this market!

As always, please feel free to call with any questions.   We very much appreciate your business.

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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