Generated RSS Feed

What a Noisy World Means for Your Portfolio

Thu, 26 Mar 2026 19:51:33 GMT

If it feels like the news cycle has been louder than usual lately, that's because it has been. Geopolitical tensions across multiple regions, shifting U.S. trade relationships, and a rapidly changing domestic political landscape are all contributing to elevated market volatility. We want to take a moment to share our perspectives on what this means for your portfolio and for the broader inflation picture.

What's Happening Globally

We are in an extraordinary moment. The U.S. is reshaping its economic and geopolitical relationships in ways that are accelerating global fragmentation and creating real uncertainty for businesses and investors alike. Energy markets have been particularly sensitive to these developments, with commodity prices responding sharply to supply disruptions and shipping route concerns. Most forecasters believe current disruptions are short-lived and expect prices to moderate as conditions stabilize, but the range of outcomes remains wide.

Closer to home, affordability has become the defining political issue heading into the midterm cycle. The administration is rolling out consumer-focused measures around housing costs, prescription drugs, and credit, which could benefit some sectors while creating headwinds for others.

What This Means for Inflation

The inflation picture is nuanced right now. If current disruptions prove temporary, the impact on consumer prices should remain limited. However, if tensions persist and energy prices stay elevated, we expect to see some upward pressure on inflation over time. It is worth keeping in mind that energy prices, while attention-grabbing, are historically less influential on long-term inflation than factors like wage growth and domestic demand.

The broader U.S. picture reflects a tension between tariff-driven price pressure on one side and softening economic momentum on the other. The Fed is navigating this carefully, balancing inflation concerns against labor market signals. For now, rates appear likely to hold steady near term, with modest cuts possible later in the year if conditions warrant.

How We're Thinking About Your Portfolio

Volatility is uncomfortable, but it is not the enemy of long-term wealth building. History has demonstrated consistently that market disruptions driven by geopolitical events tend to be temporary in nature. Long-term investors are best served by staying anchored to their goals and risk parameters rather than reacting to the news of the day.

This environment does reinforce several principles we apply in managing your portfolio: maintaining thoughtful diversification, ensuring fixed income allocations reflect your actual income needs, and being intentional about where inflation and energy exposure sits within your overall strategy.

We are monitoring developments closely and will continue to adjust positioning as the picture becomes clearer. As always, if anything here raises questions specific to your situation, please reach out. That conversation is exactly what we are here for.

Patience Over Panic: Interpreting Today’s Fed Decision

Wed, 28 Jan 2026 22:24:27 GMT

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

Wed, 21 Jan 2026 19:56:32 GMT

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

Thu, 11 Dec 2025 15:52:01 GMT

The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.

Finishing 2025 Strong: Key Trends to Watch

Mon, 01 Dec 2025 20:15:37 GMT

As we move into the final month of 2025, markets are adjusting to a new mix of encouraging economic trends and lingering uncertainty. November ended on a softer note, but December has opened with improved sentiment, clearer expectations around Federal Reserve policy, and a more confident tone in both equity and fixed income markets. Investors are watching these shifts closely, and the weeks ahead will help determine how the year ultimately finishes.

At Affinity Capital, we continue to see an environment supported by quality leadership, steady earnings, and more attractive income opportunities. At the same time, late-cycle pressures and uneven economic data remind us that thoughtful risk management remains essential.

A More Constructive Tone to Start December

December began on firmer footing after several weeks of mixed performance. The most significant driver has been the market’s growing conviction that the Federal Reserve is getting closer to the start of a rate-cutting cycle. Current pricing suggests a meaningful chance of a cut in the near term, which has helped lift sentiment across equities and high-quality bonds.

This optimism has also supported areas that tend to benefit from lower yield expectations, such as precious metals and rate-sensitive parts of the market. While not a guarantee of what comes next, the shift toward more accommodative policy expectations has created a more balanced backdrop than we saw earlier in the fall.

Economic Data Remains Mixed

Despite the improved tone, the incoming data continues to show pockets of weakness. Manufacturing activity has contracted for another month, hiring momentum has slowed, and consumer spending has moderated from its pace earlier in the year. The recent government shutdown delayed several economic releases, and the catch-up process has added some short-term noise to the data stream.

What stands out is the contrast between a resilient corporate earnings picture and a softer macro environment. Many large companies continue to report healthy margins and steady demand, yet the broader economic indicators suggest that growth is losing some steam. This type of divergence is typical in late-cycle phases and often results in more frequent market swings.

Volatility Has Picked Up

After months of historically low volatility, markets have begun to experience more frequent fluctuations. Concerns around artificial intelligence valuations, regional banking stress, and geopolitical developments have all played a role. Volatility is not necessarily a sign of structural weakness, but it is a reminder that investors should expect a less predictable finish to the year.

For diversified portfolios, these swings can create opportunities to rebalance, harvest gains, or add exposure to areas that have repriced more attractively. They also highlight the importance of high-quality holdings that can withstand periods of uncertainty.

Opportunities Across Equities and Fixed Income

Even with the mixed data backdrop, the overall investment environment remains constructive for long-term investors. High-quality U.S. companies with strong balance sheets and consistent earnings continue to provide stability at the core of portfolios. Select small-cap and mid-cap companies have also begun to show signs of improvement as rate expectations shift.

In fixed income, today’s yields offer significantly more value than they did for much of the past decade. Bonds once again contribute meaningful income, and the possibility of lower rates in 2026 creates potential for price appreciation in high-grade credit. This combination strengthens the case for balanced portfolios that include both equities and fixed income.

Positioning Into Year-End

Given the current landscape, we believe the market is moving toward a finish that is neither overly exuberant nor overly cautious. Several key themes are likely to guide performance over the coming weeks.

Quality leadership continues to play an important role, especially in sectors tied to innovation, cloud infrastructure, and digital transformation
Broad market exposure remains valuable in capturing the benefits of seasonal strength and earnings resilience
Dividend-oriented and defensive holdings support stability in late-cycle environments
High-quality bonds offer attractive income and diversification benefits
Small-cap and mid-cap allocations may provide long-term upside as rate expectations shift

Looking Ahead

As the year comes to a close, investors are balancing two realities. On one side, there is growing optimism around potential rate cuts, resilient corporate earnings, and improving seasonal patterns. On the other side, there are signs of slowing economic momentum, higher volatility, and continued geopolitical uncertainty. The result is a market that rewards discipline, diversification, and a focus on long-term goals.

At Affinity Capital, our approach remains steady. We continue to emphasize high-quality holdings, balanced allocations, and thoughtful adjustments based on data rather than emotion. The coming months will bring new information, but the principles that guide long-term success remain unchanged. We are here to help clients stay aligned with their plans and positioned with confidence as we move into a new year.

Fed Cuts Rates: What It Means

Wed, 29 Oct 2025 21:33:01 GMT

The Federal Reserve announced today that it is cutting interest rates by a quarter of a percentage point, bringing the federal funds target range down to 3.75% to 4.00% . While it may sound like just another number, this decision carries real implications for the economy and financial markets.

Why the Fed Made This Move

The Fed has two primary goals: keep inflation under control and support a healthy job market. Over the last year, much of the focus has been on the first goal. Inflation has been stubborn, running higher than the Fed’s 2% target.

Now, however, concerns about the job market are moving to the forefront. Hiring has slowed, and the Fed has acknowledged that risks to employment are rising. With economic data disrupted by the government shutdown, the central bank is working with incomplete information. In that uncertainty, officials chose to act in what they call a “risk management” mode, providing a bit of cushion for the economy.

What This Means for the Economy

Borrowing and Spending

Lower rates typically filter into lower borrowing costs for businesses and households. That can mean slightly cheaper loans, credit cards, and mortgages. We have already seen mortgage rates dip in anticipation of this move, and that could provide some relief for homebuyers.

Business Investment

When financing is less expensive, businesses are more likely to expand, invest, and hire. The Fed hopes this cut provides enough encouragement to keep the labor market steady. The reality, however, is that a single quarter-point cut may only have a modest impact unless overall demand in the economy improves.

Inflation Still in the Picture

The challenge is that inflation has not gone away. By easing policy while prices are still running above target, the Fed runs the risk of letting inflation flare up again. That balancing act—supporting jobs without reigniting inflation—will be the key tension in the months ahead.

Housing and Consumers

The housing sector is especially sensitive to changes in interest rates. Builders and buyers often respond quickly when financing costs move even a little lower. At the same time, for households carrying debt, lower rates can make it easier to manage payments or refinance. But if wages stagnate or unemployment rises, those benefits may be limited.

Markets and Volatility

Markets had largely anticipated this cut, so the bigger story is what happens next. Investors are already debating whether this will be the first of several cuts, or just a one-off adjustment. That uncertainty often creates volatility in both stocks and bonds.

The Bigger Picture

The Fed has made it clear that there is no preset course. Officials will continue to watch the data and adjust policy as needed. That means future moves could go in either direction depending on whether inflation proves sticky or the job market weakens further.

What does this mean in practical terms? It means we are entering a period where the Fed may be more reactive than proactive. Each new employment report, inflation reading, or sign of economic strength or weakness will take on outsized importance.

Our Perspective

For clients, the most important takeaway is that the Fed is signaling greater concern about the labor market, even as inflation remains above target. In other words, the economy is at a delicate point. The rate cut should provide some near-term relief, but it is not a magic fix.

We are watching several key areas closely:

The pace of hiring and unemployment trends
Inflation data to see if price pressures start to ease or flare back up
Housing activity, which could pick up if mortgage rates continue to drift lower

The Fed’s move today is best seen as a stabilizing step. It shows policymakers are willing to provide support if needed, but it also highlights just how uncertain the path forward is.

Periods like this can create noise in the markets, but they also underscore the value of staying focused on long-term goals. Our role is to keep a steady eye on developments, evaluate the implications, and make thoughtful decisions on your behalf.

As always, we will continue monitoring the Fed’s actions and the broader economy, and we will keep you updated as the situation evolves.

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

Wed, 01 Oct 2025 19:52:13 GMT

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

Wed, 17 Sep 2025 20:54:26 GMT

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

Thu, 04 Sep 2025 15:24:29 GMT

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

Fri, 22 Aug 2025 20:57:39 GMT

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

Wed, 06 Aug 2025 21:01:00 GMT

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.

Economic Signals Are Sending Mixed Messages

The jobs data released early in the week showed signs of cooling—something the Fed has been watching closely. Slower job growth may point to a softening economy, but it also raises hopes for interest rate relief. Markets responded with volatility, swinging between “risk-on” rallies and cautious pullbacks.

Meanwhile, trade policy headlines reemerged, reminding us that global markets remain vulnerable to tariff shifts and cross-border tensions. New announcements on trade duties, particularly around key manufacturing inputs and pharmaceuticals, sparked concern about rising costs and long-term competitiveness.

Earnings Season: A Tale of Two Economies

We’re deep into earnings season, and if there’s one clear takeaway, it’s this: not all companies are experiencing the same economy.
While some sectors—especially those tied to technology and AI—continue to show strength, others are contending with inflation, wage pressures, and changing consumer behaviors.

Retail and travel companies are reporting signs of a more selective consumer . Households aren’t necessarily pulling back, but they’re more discerning about where and how they spend. That shift may be a leading indicator of broader economic trends.

What’s Next for Markets?

With inflation still above target and the Fed’s next move uncertain , markets may remain range-bound in the near term.

Investor attention is shifting toward the next inflation report and the Fed’s September meeting—both of which could shape sentiment for the rest of the year.

We’re also seeing cracks in market breadth , as fewer stocks participate in rallies and defensive sectors attract attention. This is an environment that rewards long-term thinking and disciplined portfolio strategy.

A Final Word

Amid headlines, volatility, and speculation, it’s easy to feel overwhelmed. But most investors are asking the right question: “What does all this really mean for me?”

The answer depends on your goals, your timeline, and your financial plan. Markets will always fluctuate—but with clarity, structure, and the right support, you can navigate uncertainty with confidence.

Weekly Market Update: Stability Amid Data and Tariff Jitters

Thu, 17 Jul 2025 20:47:00 GMT

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.

Key Market Drivers

Fed Independence & Rate Policy Under Scrutiny

President Trump’s comments hinting at possibly firing Fed Chair Powell triggered brief dips in both equities and the U.S. dollar. While equities quickly bounced after Trump walked back the comments, investor awareness of potential political interference with the Federal Reserve spiked, pushing 10‑year Treasury yields higher and nipping at risk appetites.

Strong U.S. Economic Data

U.S. retail sales surged 0.6% in June, topping expectations and indicating underlying consumer resilience. Weekly unemployment claims fell, confirming steady job creation. These positives helped overshadow fears around tariffs, emphasizing that demand remains firm—enough to keep the Fed from moving too soon toward easing.

Earnings Momentum

Tech earnings led the charge this week. Taiwan Semi-Conductor posted record profits, citing strong AI-chip demand and lifting chip stocks broadly. United Airlines also boosted market tone with upbeat results, while PepsiCo saw modest revenue growth. These earnings outliers lent support amid broader–but tempered–sentiment.

Tariff Updates & Global Trade Tensions

Trade news kept investors on edge. Trump levied fresh 30% tariffs on EU goods effective August 1, alarming markets. He also signaled tariffs on copper and Canadian imports, fueling uncertainty. These developments may inject inflationary pressures via input‑cost passes, which in turn could limit Fed flexibility on rate cuts.

Global Market Ripple Effects

India’s Sensex and Nifty experienced brief softness on international trade nervousness, then rebounded after cooler inflation in Mumbai. In the UK, markets advanced after softer labor-market data boosted expectations of an August rate cut by the Bank of England.

Market Implications & Near-Term Outlook

Inflation trajectory: While headline CPI remains at moderate levels (~2.6% year-over-year in June), trade-driven costs are creeping upward. Market expectations now imply two 25-basis-point Fed cuts by year-end, but this is being reevaluated given stronger growth indicators.
Earnings season: Coming weeks will highlight major banks like JPMorgan, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley. These reports could offer valuable insight into credit conditions, trading revenues, and the consumer credit cycle—highly watched as signs of broader economic resilience or stress.
Tech outlook: The continued NASDAQ rally, fueled by gains in chipmakers like Nvidia and Taiwan Semi-Conductor, underscores AI-driven demand. However, any shift in trade policy that stokes inflation or supply chain disruptions could threaten margins.
Volatility watch: Despite periodic headlines, volatility remains subdued—a sign of lingering confidence but also of hesitant positioning. Watch for reacceleration in the Volatility Index if geopolitical or policy uncertainty spikes again.

Forecast for the Week Ahead

Looking ahead, expect continued range-bound action, punctuated by:

Fed communications & data: Speeches by Fed speakers, plus second-tier data releases (industrial production, consumer sentiment) will influence rate outlooks.
Earnings flow: Bank reports may sway sentiment; strong results could reinforce equity risk appetite, while any signs of consumer/stress cracks may trigger pullbacks.
Trade/tariff narratives: Upcoming deadlines (e.g., new copper tariffs Aug 1) and trade talks with Canada and the EU will be a macro swing factor. Markets may react quickly to any unexpected developments.

Strategy Considerations for Clients

Diversified positioning: Equities remain attractive amid growth and earnings resilience. But monitor tech concentration risk—having some exposure outside the mega-cap tech cohort may help hedge volatility.
Fixed-income focus: Rising yields suggest opportunities in shorter-duration credit and inflation-sensitive instruments. However, long duration still faces pressure unless data shows clear cooling.

We’re always honored to be part of your financial journey. Whether you’re navigating changing markets or planning for the next generation, we’re here to provide clarity and confidence every step of the way. At Affinity Capital, Wealth Management for Life isn’t just a promise—it’s our purpose.

Tariff Turbulence, Labor Weakness and Market Resilience: Weekly Update

Thu, 03 Jul 2025 16:58:00 GMT

The U.S. equity markets were marked by a modest pullback in the Nasdaq, while the Dow and small caps posted gains. Through Tuesday, the Dow Jones surged roughly +1.5% , while the S&P 500 added about +0.4% and the Nasdaq slipped ~‑0.3% for the week. Mega-cap technology stocks led earlier gains, pushing both the S&P and Nasdaq to fresh all-time highs by early July, building on a two‑month rally of nearly +24% from April lows.

Sector performance highlights include communication services (+5%) and technology (+4.3%) outpacing the broader market on increasing investor enthusiasm around trade optimism and cooling commodity prices.

Key Drivers & Economic Developments

Softening Labor Data : June’s ADP report showed a decline of 33,000 private‑sector jobs , signaling weakness in hiring momentum—the first fall in over two years and well below expectations of +100,000. If the official nonfarm payrolls data show continued softness, the Fed may consider rate cuts as early as July.
Tariff Deadline Tensions : With the “Liberation Day” tariff pause set to expire July 9 , investor anxiety is rising. U.S. mid-size firms face roughly $82B in increased costs due to tariffs , weighing on margins and hiring plans. Renewed tariffs could introduce volatility, while phased trade deals with countries like the UK and China may offer relief if successful.
Dollar & Bond Markets : The U.S. dollar faced its worst first-half decline since 1973, down over 10% , driven by policy uncertainty and tariff rhetoric. Treasury yields declined as well—10‑year yields hit ~4.28%—suggesting investor caution and easing inflation expectations.
Federal Reserve Outlook : Fed Chair Jerome Powell cited tariff‑driven inflation as a key reason for delaying interest rate cuts. That said, mounting signs of labor weakness are increasing speculation around a potential rate cut this month or in early fall if conditions deteriorate. The anticipated replacement of Powell later in 2025 adds another layer of policy uncertainty in rate‑sensitive sectors.

Analysis & Implications

The market rally reflects robust investor sentiment around improved trade relations, lower oil prices, and the momentum in mega-cap stocks. However, tariff risk looms large with the upcoming deadline and narrow trade progress so far.
Labor market softening raises the likelihood that the Fed will pivot sooner than previously expected, which may buoy market risk assets but also increase inflation uncertainty if stimulus arrives prematurely.
A weaker dollar offers export benefits but also signals global confidence concerns—this dynamic could fuel inflows into commodities and foreign markets. Expect bond yields to remain sensitive to macro data and Fed commentary.

Outlook and Forecast

Over the next few trading days, attention will center on the nonfarm payroll report for June , scheduled Thursday, and how investors interpret it in terms of Fed timing. July 9 represents a critical date for trade policy clarity as the tariff pause ends. Continued buy‑the‑dip sentiment may sustain upward market momentum, but re‑escalation of trade threats or worse‑than‑expected labor data could trigger volatility.

It’s been a volatile but constructive week, with an uneven mix of optimism around trade developments and caution on economic fundamentals. The near future hinges on labor data and policy moves—both fiscal and regulatory. We continue to monitor closely and recommend balanced positioning with attention to risk catalysts.

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.

Holding the Line: The Fed's Latest Move

Thu, 19 Jun 2025 16:15:00 GMT

The Federal Reserve announced its decision to maintain the federal funds rate at 4.25%–4.5%, marking the fourth consecutive meeting without a change. This move aligns with market expectations and reflects the Fed's cautious approach amid evolving economic conditions.

Key Takeaways from the Fed's June 18 Announcement:

Interest Rates Held Steady : The Fed opted to keep rates unchanged, signaling a "wait-and-see" stance as it assesses the impact of recent economic developments, including the administration's tariff policies.
Inflation and Growth Projections Adjusted : The central bank revised its economic forecasts, anticipating inflation to rise to 3% by year-end, up from the previous 2.7% estimate. Concurrently, GDP growth projections were lowered to 1.4%, indicating a moderation in economic expansion.
Tariff-Related Uncertainties : The Fed highlighted the potential inflationary pressures stemming from the administration's new tariff policies, which could disrupt supply chains and elevate costs across various sectors.
Future Rate Cuts Signaled : Despite current uncertainties, the Fed's "dot plot" indicates that a majority of policymakers foresee at least two rate cuts later this year, contingent on economic developments.

Market Reactions and Economic Implications:

Following the Fed's announcement, financial markets exhibited mixed reactions. The S&P 500 (SPY) and Nasdaq Composite (QQQ) experienced modest gains, reflecting investor optimism about potential future rate cuts. However, the Dow Jones Industrial Average (DIA) remained relatively unchanged, indicating caution among investors. In the bond market, the yield on the 10-year Treasury note (TLT) remained stable, suggesting that investors are maintaining a balanced outlook on interest rates and economic growth.

The Fed's decision underscores its commitment to data-driven policy-making, balancing the need to support economic growth with the imperative to control inflation. While the prospect of future rate cuts may provide some relief to borrowers and stimulate investment, the prevailing uncertainties—particularly concerning trade policies and global geopolitical tensions—warrant a prudent and measured approach.

Investment Strategy Considerations:

In light of these developments, we recommend the following strategic considerations:

Diversification : Maintain a diversified portfolio to mitigate risks associated with market volatility and economic uncertainties.
Quality Assets : Focus on high-quality assets with strong fundamentals that can withstand economic fluctuations.
Interest Rate Sensitivity : Monitor interest rate movements closely, as future rate cuts could impact sectors differently.
Global Exposure : Be mindful of the potential effects of international trade policies on global markets and adjust exposures accordingly.

We will continue to monitor the economic landscape and provide updates as new information becomes available. We’re always here to answer your questions and provide the support you need. Our commitment to "Wealth Management for Life" drives us to offer lasting guidance for your family’s financial well-being.

Market Momentum or Mirage? What This Week’s Numbers Are Really Telling Investors

Thu, 05 Jun 2025 20:26:00 GMT

This week, the U.S. stock market is navigating a complex mix of resilience and caution. As your trusted financial advisory team, we’ve taken a close look at the most recent economic indicators, market movements, and policy developments to help you make informed decisions in a shifting landscape.

Market Overview (June 2–4):
Major indices posted moderate gains:

S&P 500: +0.6%, nearing its record high
Dow Jones: +0.5%
Nasdaq: +0.8%
Russell 2000: +1.6%

Despite year-to-date volatility, markets are responding with cautious optimism to evolving economic signals.

Economic & Market Influences:

The ISM Services Index contracted, and only 37,000 private-sector jobs were added—the weakest in two years.
The Federal Reserve has held interest rates steady at 5.25%–5.50%, signaling patience in the face of persistent inflation.
10-year Treasury yields briefly rose above 4.5%, sparking investor concerns, but history suggests equities can perform well under similar conditions.
Ongoing U.S.–China tensions and renewed tariff disputes with the EU are adding to near-term market uncertainty.

Investor Sentiment :
Investor confidence is holding firm despite mixed signals. Valuations are broadly fair, but fears of stagflation—slow growth plus stubborn inflation—could constrain policy responses and impact returns if left unchecked.

What We’re Doing for Your Portfolios

As stewards of your investment strategy, we’re actively:

Maintaining thoughtful diversification across asset classes and sectors to help manage risk and capture long-term opportunity.
Monitoring key economic indicators and Federal Reserve signals to anticipate shifts in market conditions and make timely adjustments.
Evaluating sector exposure continuously, with a focus on managing positions in interest rate–sensitive and trade-impacted industries, ensuring your portfolio remains resilient amid changing global dynamics.

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.

Relief Rally Meets Economic Crosswinds

Wed, 04 Jun 2025 19:11:00 GMT

This week, U.S. financial markets delivered a modest but meaningful rebound, buoyed in large part by a federal court decision that blocked the majority of former President Trump’s proposed tariffs. The ruling eased investor fears over a renewed trade war, offering a reprieve for markets that have been wrestling with policy uncertainty in recent weeks. As a result, the S&P 500 gained approximately 0.8%, the Nasdaq Composite advanced 1.3%, and the Dow Jones Industrial Average posted a more subdued 0.2% rise.

Technology stocks led the rally, particularly within the semiconductor space. A major chipmaker reported better-than-expected earnings and issued optimistic forward guidance, reinforcing the sector’s pivotal role in powering artificial intelligence and advanced computing. Investor enthusiasm around these themes continues to support valuations, even amid broader macroeconomic concerns.

Meanwhile, the picture was less bright for retailers and consumer-facing companies. Several household names issued downward revisions to their full-year outlooks, citing shifting consumer spending patterns, margin pressure from rising costs, and lingering uncertainties tied to global trade policy. This divergence in sector performance serves as a timely reminder of the need for thoughtful diversification in portfolio strategy.

Turning to monetary policy, the Federal Reserve opted to hold its benchmark interest rate steady at a range of 4.25% to 4.50%. In its latest statements, the Fed reaffirmed its commitment to curbing inflation, which remains elevated despite having eased from last year’s highs. Policymakers continue to flag the risk of stagflation, characterized by rising prices alongside slower economic growth, and made clear that rate cuts are unlikely until the data shows more durable progress on inflation.

Internationally, South Korea’s central bank cut its interest rate by 25 basis points in a move aimed at jump-starting flagging economic activity. As a major exporter with close ties to the U.S. economy, South Korea’s decision underscores the ripple effects that American trade and interest rate policies can have across the globe.

Looking ahead, next week’s employment report and the latest inflation data will be pivotal. These figures are likely to influence both investor sentiment and the Fed’s decision-making in the months ahead. In the meantime, while markets may experience more short-term volatility, maintaining a disciplined, long-term investment strategy remains key.

We’re here to help you navigate it all. Whether you have questions about recent market developments, your financial plan, or how current events may impact your goals, our team is always just a phone call, text or email away. Thank you for the continued trust you place in us—your future is our priority, and we remain dedicated to providing thoughtful, personalized guidance through every chapter of your financial journey.

The Tug of War: Bonds vs Stocks

Thu, 22 May 2025 19:03:00 GMT

The S&P 500 index declined by 3.6% for the week, marking its steepest weekly drop since September 2024. Dow Jones Industrial Average: The Dow fell by 2.9%, weighed down by concerns over rising bond yields and fiscal policy uncertainties. Nasdaq Composite: The tech-heavy Nasdaq recorded a 4.1% loss, its worst weekly performance in recent months, as investors rotated out of growth stocks amid economic uncertainty.

Moody’s Ratings Service recently lowered the U.S. long-term credit rating from its top grade (AAA) to AA ⁺ . While this downgrade sends a cautionary signal to investors—that borrowing costs could rise over time—it does not mean that the United States will default on its obligations. Instead, Fitch’s decision highlights long-term concerns about fiscal management and governance that may lead to higher future borrowing costs if these issues are not addressed.

Another rating agency, Fitch downgraded the U.S. credit rating on August 1, 2023.

Keep in mind that your Affinity Capital Portfolios do not mimic the common market indices.

Throughout the second quarter, Affinity Capital has preserved cash and significantly increased our Bond allocation. Proper short-term cash management is an extremely valuable strategy in a volatile market. We have purchased numerous financially strong, defensive dividend stocks including those in the Consumer Staples, Finance and Healthcare sectors.

Impact on the Stock Market Increasing Bond Yields:

Note: The term "yield" is simply a financial industry term to describe “interest”.

A New Investment Rival: Stocks are one way to invest, but if bonds start offering higher returns due to rising yields, investors might prefer these safer income options over riskier stocks. When money shifts from stocks to bonds, stock prices might drop.
Valuing Future Earnings: Investors value stocks based on what a company will earn in the future. If bond yields increase, the extra money you can earn from bonds makes a company’s future earnings less attractive today. This can lead to lower stock prices because the present value of future profits is reduced.

Adjusting Strategies:

Shifting from Stocks to Bonds:
As bonds offer higher returns, professional money managers like Affinity Capital, may move money from stocks to bonds for a safer, steadier income.
Diversification and Rebalancing:
To manage the increased volatility, diversified portfolios are key. We balance investments between stocks and bonds and seek out sectors known for steady performance. This helps to cushion against sudden market swings.
Focusing on Quality and Dividends:
We are favoring companies with strong balance sheets and regular dividend payments. These companies can provide income even when market prices fluctuate, making them more appealing in a time of rising borrowing costs and market uncertainty.

Even during these uncertain times, it is important to stick with a long-term plan. We are here to help guide you through these changes. Our goal is to keep your money safe today and build a strong financial future for you and your family.

Thank you for trusting us as your financial partner.

Trade Pause, Tech Surge: Is This the Market’s Turning Point?

Thu, 15 May 2025 17:12:00 GMT

As of midweek, U.S. equity markets have shown resilience, buoyed by a temporary easing in trade tensions and encouraging inflation data. The S&P 500 rose 0.7% to 5,886.55, effectively erasing its year-to-date losses. The Nasdaq Composite outperformed with a 1.6% gain to 19,010.08, driven by strength in AI and technology stocks. In contrast, the Dow Jones Industrial Average declined by 0.6% to 42,140.43, reflecting underperformance in industrial sectors.

Key Drivers

Trade Developments : A major catalyst for this week’s activity was the unexpected 90-day tariff truce between the U.S. and China. Both countries agreed to slash reciprocal tariffs—U.S. tariffs on Chinese goods dropped from 145% to 30%, while China reduced tariffs on U.S. imports from 125% to 10%. This move has momentarily eased fears of a full-blown trade war and provided a boost to investor sentiment.

Inflation Outlook : New data indicates a nationwide slowdown in inflation, bolstering hopes that the Federal Reserve could consider interest rate cuts later this year. However, Fed Vice Chair Philip Jefferson noted that the impact of newly imposed tariffs could complicate the inflation trajectory, temporarily pushing prices higher and creating further uncertainty around future policy moves.

Sector Highlights

Technology : The Nasdaq’s 6% weekly gain was driven by continued enthusiasm around artificial intelligence and cloud computing, signaling strong investor confidence in the tech sector’s long-term growth potential.

Aerospace : GE Aerospace stood out with a 1.2% gain, closing at a 52-week high of $221.58. This marked the stock’s fifth consecutive daily increase, significantly outperforming industry peers and reflecting strong fundamentals and demand outlook.

Economic uncertainty tied to the reemergence of tariffs has led many major companies to revise or withdraw earnings guidance. General Motors suspended a planned $4 billion share buyback, citing cost pressures, while Ford warned of a $1.5 billion profit impact. In the airline industry, United, Delta, and American Airlines all pulled their 2025 guidance. Consumer goods leaders like Procter & Gamble and PepsiCo also scaled back forecasts due to rising costs and cautious consumer behavior.

The Federal Reserve is facing a complex landscape. While inflation is easing, growth is expected to slow moderately through the rest of 2025. The labor market remains solid, but volatility in import data—affected by shifting tariff rules—is clouding the economic outlook. Policymakers remain cautious and are closely monitoring developments to determine appropriate next steps.

While the recent tariff truce and cooling inflation data offer some relief, the landscape remains dynamic. Investors should be prepared for continued market fluctuations as policymakers navigate the balance between inflation control and economic growth. Long-term fundamentals remain strong, especially in key sectors such as technology and aerospace, but uncertainty around global trade and fiscal policy will remain a critical influence in the weeks ahead.

We’re always here to provide clarity and support as you navigate the markets. Our focus remains on helping you make informed decisions with confidence. At the core of our approach is Wealth Management for Life —a promise to be your long-term partner in building and preserving financial well-being for you and your family.

Fed Holds Steady, Markets Juggle Gains: What It Means for Investors

Thu, 08 May 2025 15:33:00 GMT

The Federal Reserve announced its decision to keep interest rates unchanged at 4.25% to 4.50% on May 7, 2025, citing increased risks of both higher inflation and rising unemployment. Fed Chair Jerome Powell emphasized the need for policy flexibility, acknowledging that uncertainty in the economic outlook has increased, particularly due to trade policies.

In response to the Fed's announcement, U.S. stock markets exhibited mixed reactions. The SPDR S&P 500 experienced a modest gain of 0.51%. Conversely, the Nasdaq-100, saw a slight decline of 0.16%. The SPDR Dow Jones Industrial Average edged up by 0.38%.

The "Magnificent Seven" tech stocks, which include major players like Apple, Amazon, and Nvidia, have shown varied performances. While some have led market recoveries in recent months, others have faced challenges, reflecting the broader market's cautious optimism.

We will be closely monitoring upcoming economic data and geopolitical developments. The Fed's stance suggests that future policy decisions will be data-dependent, with particular attention to inflation trends and labor market conditions. Additionally, ongoing trade negotiations and potential tariff implementations could further influence market dynamics.

Tariffs, Tech, and Tumbling GDP: Navigating April's Market Crosscurrents

Thu, 01 May 2025 16:04:00 GMT

This week, U.S. equity markets showed unexpected resilience despite increasing signs of economic stress. The S&P 500 and Dow Jones Industrial Average extended their winning streaks to five consecutive sessions, buoyed by strong performances in industrials and consumer staples.

Late-day buying and sector-specific optimism helped offset mounting concerns around trade and macroeconomic data.

However, deeper fundamentals suggest caution. The U.S. economy contracted by 0.3% in Q1 2025 , its first negative quarter in over two years. This contraction was largely driven by businesses rushing to import goods ahead of President Trump's renewed tariffs , primarily targeting imports from China, Mexico, and Canada. This pre-emptive surge in inventory distorted the balance of trade and dampened domestic demand.

GDP contraction driven by inventory buildup and weaker consumer spending
New tariffs escalating trade tensions with major partners
U.S. manufacturers facing rising input costs and export headwinds

Corporate earnings season reflected these uncertainties. While many technology and healthcare firms reported stronger-than-expected results, a growing number of multinationals have slashed guidance . Auto manufacturers such as General Motors, Mercedes-Benz, and Stellantis , with heavy North American cross-border supply chains, cited significant tariff-related cost increases.

UPS, Procter & Gamble, and PepsiCo each reported higher operational costs and trimmed forward-looking earnings projections
Sectors under pressure: automotive, logistics, and consumer discretionary
Sectors showing strength: defense, industrials, and selected large-cap tech

Abroad, China’s factory activity contracted at its fastest pace in 16 months , signaling global economic ripples from protectionist U.S. policy. Weak manufacturing demand, coupled with diminished export activity, has added to global market jitters.

China’s PMI fell below 48 , well into contraction territory
Eurozone growth stagnated , particularly in Germany and Italy, reinforcing fears of broader slowdown

Looking forward, volatility is expected to continue as markets react to geopolitical developments and central bank decisions. The Federal Reserve remains in a delicate position—balancing inflation control with economic support. Though a rate cut isn’t imminent, language from recent Fed meetings suggests increased flexibility should growth continue to soften .

Watchlist items for investors:
- Upcoming Fed rate decision and employment data
- Corporate earnings revisions in Q2
- U.S.–China and U.S.–Mexico trade negotiations

In light of these developments, we continue to recommend a thoughtful, diversified approach to portfolio management. Now more than ever, it is important to maintain appropriate liquidity, assess any concentrated exposure to sectors sensitive to global trade dynamics, and prioritize quality. Companies with strong balance sheets, consistent cash flows, and resilient business models are well-positioned to weather market volatility and deliver long-term value. For many clients, this may also be a prudent time to review allocations and rebalance where necessary to stay aligned with your goals.

As always, we’re here to help you navigate uncertainty with confidence. If you have questions about how current market conditions may affect your financial plan, we encourage you to reach out. At the heart of everything we do is our commitment to "Wealth Management for Life" —providing enduring guidance to support the long-term success and security of you and your family.

Market Pulse — Relief Rally Amid Trade Tensions and Earnings Surprises

Thu, 24 Apr 2025 20:46:00 GMT

U.S. equities rebounded sharply this week, buoyed by a softer tone from the White House on trade and monetary policy, as well as strong earnings from key sectors. The S&P 500 climbed 1.8%, the Dow Jones Industrial Average gained 1.2%, and the Nasdaq Composite surged 2.6%, with the tech-heavy index leading the charge thanks to robust pe rformances from semiconductor stocks.

The rally was sparked by President Trump’s unexpected shift in rhetoric, signaling openness to reducing tariffs on Chinese imports and affirming support for Federal Reserve Chair Jay Powell. This policy pivot eased investor concerns and helped lower Treasury yields, providing a tailwind for equities. Treasury Secretary Scott Bessent’s acknowledgment that current tariffs are “not sustainable” further fueled optimism for a potential de-escalation in trade tensions.

Despite the positive market movement, underlying economic indicators painted a more cautious picture. The International Monetary Fund (IMF) urged global leaders to resolve trade tensions swiftly, citing the threat they pose to global economic stability. Additionally, consumer confidence in Europe showed signs of weakening, with expectations of declining business morale in Germany and falling consumer confidence in France and Britain.

Corporate earnings were a mixed bag. General Electric (GE) reported strong earnings and estimated manageable tariff-related costs, resulting in a stock rise. In contrast, RTX Corporation faced a larger-than-expected $850 million in tariff costs, leading to a 10% stock drop. These divergent outcomes underscore the uneven impact of trade policies across industries.

Looking ahead, several key economic events could influence market sentiment. The April non-farm payrolls report, due on May 2, will provide insight into labor market strength. The Federal Reserve’s policy meeting on May 7 and subsequent commentary may address inflationary effects of tariffs. Additionally, CPI data on May 13 and Core PCE data on May 30 will reveal how tariffs are impacting consumer prices. We will also be closely watching for developments in trade negotiations, particularly as the 90-day pause on reciprocal tariffs ends on July 9.

While this week’s rally offers a welcome respite, the market remains sensitive to policy shifts and economic data. We will stay vigilant and consider the potential implications of upcoming economic reports and geopolitical developments.

We’re always here to provide clarity and support as you navigate the markets. Our focus remains on helping you make informed decisions with confidence. At the core of our approach is “Wealth Management for Life”—a promise to be your long-term partner in building and preserving financial well-being for you and your family.

Adapting to Change: Market Moves and What’s Next

Thu, 17 Apr 2025 14:28:00 GMT

This past week, financial markets have grappled with mounting trade tensions, renewed geopolitical uncertainty, and a shifting global economic outlook, leading to pronounced volatility across sectors. Despite a promising start to the week, sentiment quickly shifted as investors weighed the impact of fresh U.S. trade restrictions and cautious commentary from central banks.

Markets initially rose on Monday, following news that President Trump would temporarily ease tariffs on select consumer electronics to avoid disrupting back-to-school sales. The S&P 500 climbed 0.8%, while the Dow Jones Industrial Average gained 0.7%, buoyed by optimism around short-term consumer resilience. However, these gains were erased midweek as the U.S. imposed new limits on chip exports to China—particularly targeting advanced AI semiconductors. The tech-heavy Nasdaq slipped nearly 1.3% by Wednesday's close.

The selloff was especially pronounced in semiconductor stocks. Nvidia, a bellwether for AI innovation, saw shares tumble over 6.5% after projecting up to $5.5 billion in lost revenue from halted chip sales to China. The broader Philadelphia Semiconductor Index also declined more than 4% over the week.

Other notable developments this week include:

Airline Sector Weakness: Delta, United, and American Airlines, which had forecast a rebound year in 2025, now face slowing demand due to geopolitical concerns and climate-related disruptions. Analysts expect an earnings recession for the sector.
Fed Watch: Federal Reserve Chair Jerome Powell emphasized a “wait-and-see” approach, citing conflicting data signals. While inflation remains above target, signs of softening consumer demand and tighter credit conditions are tempering expectations for immediate rate hikes or cuts.
Global Trade Downgrade: The World Trade Organization downgraded its 2025 global trade growth outlook from 2.7% to a contraction of 0.2%, citing weakened demand and higher barriers.
Mixed International Picture: China's Q1 GDP beat expectations at 5.3%, but economists remain wary due to anticipated fallout from ongoing U.S. tariffs. Meanwhile, the Bank of Japan is expected to cut its growth forecast as export conditions deteriorate.

Looking forward, we anticipate continued market sensitivity to macro headlines, particularly around trade developments and upcoming corporate earnings. While volatility may persist, long-term investors should remain focused on fundamentals, diversification, and quality. Defensive sectors and dividend-paying stocks may present more stability in the near term, while opportunities in AI, clean energy, and infrastructure remain compelling themes for those with a longer horizon.

Our Affinity Capital Portfolios have purchased numerous partial positions in several stocks paying strong dividends within defensive sectors.

Market Flash April 6, 2025

Mon, 07 Apr 2025 02:33:00 GMT

The Futures Markets are currently indicating a decline of 1500 points on the Dow Jones Industrial Average for Monday morning.

This is in line with our Affinity Capital Market Flash from this past Friday: Affinity Capital Market Flash April 4, 2025

Our portfolios average 25% in cash and 40% in fixed income related securities, (bonds) which are the right places to be right now. The remaining 35% in equities will still face a rocky road ahead although many are stocks or funds that we may have a partial position and intend to add to as the markets weaken. Many of our other positions are good quality, long-standing positions with favorable gains that give us some room to further evaluate the depth of this downturn.

We have weathered world wars, oil embargoes, terrorist attacks, a financial crisis and a pandemic and the markets have always recovered. We believe we are well positioned both for the short term and as long-term investors.

As always, please feel free to reach out with your questions and concerns. We appreciate the opportunity to serve you.

Market Flash April 4, 2025

Fri, 04 Apr 2025 20:55:00 GMT

We woke up this morning to another market sell-off. Our main point this morning is for you to not equate your portfolios to the major market indices . We believe our portfolios are well positioned for this sell-off and we see great opportunities for long-term investors. There are a lot of numbers within this Market Flash , but we trust that they are presented well. Prior to yesterday, we averaged 25% to 30% in cash, much of it due to sales of technology heavy funds throughout the first quarter. We took advantage of yesterday's sell-off to reposition our portfolios.

As we write this morning, our Affinity Capital Income & Appreciation & Capital Appreciation Portfolios are averaging (-1.37%) versus (-4.16%) for the S&P 500 for the morning. An advantage of 2.79% or a 67% ratio to the Index. Mentioned below: While we would like to see some support in the markets around these levels, we could be at the bottom of this sell-off or the top of the next leg and experience tells us that gravity is quite a weighty force!

Portfolio Notes:

We remain on average 20% in Cash
We are out of Small and Mid Cap positions (See Russell 2000 Index performance below)
We average 30% to 40% in Fixed Income (Bonds)
We added partial positions of high-quality individual stocks to our portfolio. 4 of 5 were positive for the day yesterday.

Your portfolios are well positioned for this sell-off and we see great opportunities for long-term investors. As we speak with friends in the investment community as well as others with accounts elsewhere, the consensus is to "just ride it out". The math is simple, over time, it is much more difficult to recover from losses than participate fully in a bull market. We will be working hard to position your hard-earned assets for long-term common-sense income and growth.

As noted in our Affinity Capital Market Flash on Tuesday with a quote from our Comment on March 10th:

Throughout the first quarter we have been selling mostly technology-related positions and building up cash in our client accounts, averaging 25% - 30%. As noted in our previous Affinity Capital Market Flash of March 10th Market Flash | Affinity Capital , our view on the major market indices was as follows:

The tech-heavy Nasdaq will likely see another 5% to 9% downside.
The Dow Jones Industrial Average has reached a support level. While we would like to see it hold here, the next drop could be another 4.5% to 5 %. For perspective that would be in the area of another 2000 points to the downside – which sounds a bit scarier than 5%
The S&P 500 may see another 5% to the downside.

Yesterday saw the major averages sell-off significantly:

The S&P 500 fell 274.45 points, or 4.8%, to 5,396.52.
The Dow Jones Industrial Average fell 1,679.39 points, or 4%, to 40,545.93.
The Nasdaq composite fell 1,050.44 points, or 6%, to 16,550.61.
The Russell 2000 index of smaller companies fell 134.82 points, or 6.6%, to 1,910.55.

As we write this morning; the major averages are again selling off. While we would like to see some support in the markets around these levels we could be at the bottom of this sell-off or the top of the next leg.

The S&P 500 is off -224.35 (-4.16%)
- This is a current support level
- We see the next support level at another (-4.88%) to -(6.78%) to the downside
The Dow Jones Industrial Average is off -1,417.52 (-3.50%)
- Current support level is another (- 2.44%)
- We see the next support level at another (-3.80%) to the downside
The Nasdaq composite is off -764.00 (-4.62%)
- Current support level is between this current level and another (- 2.44%) to the downside
- We see the next support level at another (-5.62%) to the downside
** Please note that these are not crystal ball predictions, they are simply target areas or mile-markers used as just one piece of information to evaluate the markets.

To note a well-known quote among investors, "Be greedy when others are fearful and fearful when others are greedy."

Monday will tell us a lot about the markets going forward. We anticipate some clarity as we move to mid-year and into the 3rd quarter. As we have stated many times before, the markets are most fearful of the unknown. The optimistic view is that the tariffs are mostly negotiating tools and that as trading partners come to the table, a large number of agreements can be reached. Additionally, we believe the current tax bill in congress will be favorable to the markets. These are just two of many issues that face the markets, and we continue to be vigilant in monitoring those that affect your investments.

As always, please reach out with any questions or concerns. We welcome an opportunity to visit with you and appreciate the faith and confidence you have in Affinity Capital and our team.

How Tariffs Affect Your Investments

Wed, 02 Apr 2025 22:26:00 GMT

Throughout the first quarter we have been selling mostly technology-related positions and building up cash in our client accounts, averaging 25% - 30%. As noted in our previous Affinity Capital Market Flash of March 10 ^th Market Flash | Affinity Capital , our view on the major market indices was as follows:

The tech-heavy Nasdaq will likely see another 5% to 9% downside.
The Dow Jones Industrial Average has reached a support level. While we would like to see it hold here, the next drop could be another 4.5% to 5 %. For perspective that would be in the area of another 2000 points to the downside – which sounds a bit scarier than 5%
The S&P 500 may see another 5% to the downside.

The futures markets for tomorrow's opening are significantly down as we write this, although we expect major volatility in the overnight markets. With futures this volatile, they can swing from negative to positive throughout the night. We will be rebalancing portfolios in the next few days and have been preparing for months to reshape our asset allocations to be ready for another leg down in the markets. Many positions will be rebalanced and new positions added, some of which may be partial purchases that we may add to, with further market deterioration .

Our long-term outlook for the markets remains positive and this correction provides long-term opportunity.

Factors Driving the Markets

This week, the stock market has experienced significant volatility, primarily driven by the President's announcement of new tariffs today. These tariffs include up to 20% levies on all imports to the U.S., with targeted increases on goods from China, Canada, and Mexico, as well as additional duties on cars, steel, and aluminum. The administration asserts that these measures aim to bolster domestic manufacturing and address perceived unfair trade practices. However, economists and business leaders have expressed concerns about potential economic fallout, including trade wars, inflation, and a possible recession.

In response to these developments, major stock indices have exhibited sharp movements. On Monday, March 31, the S&P 500 rose 30.91 points (0.6%) to 5,611.85, and the Dow Jones Industrial Average increased by 417.86 points (1%) to 42,001.76. Conversely, the Nasdaq Composite declined by 23.70 points (0.1%) to 17,299.29. These fluctuations reflect investor uncertainty regarding the potential impact of the tariffs on various sectors.

Certain sectors and companies have been notably affected. The technology sector, initially showing resilience, faced reversals as trade tensions escalated. For instance, Apple Inc. (AAPL) saw its stock price reach an intraday high of $225.175 before closing at $224.01, reflecting a modest increase of 0.37%. Similarly, Amazon.com Inc. (AMZN) experienced a 2.42% rise, closing at $196.82, after fluctuating between $187.48 and $198.28 during the day. Tesla Inc. (TSLA) demonstrated significant volatility, with its stock surging by 5.52% to close at $283.27, following an intraday low of $251.56. These movements underscore the market's sensitivity to policy announcements and the broader economic implications.

The energy sector also felt the impact, with Exxon Mobil Corp. (XOM) experiencing a slight decline of 0.4%, closing at $118.56. This dip reflects broader concerns about how tariffs might affect global supply chains and energy markets.

Beyond equities, other financial markets responded to the tariff news. Gold prices surged to record highs as investors sought safe-haven assets amid the uncertainty. Conversely, cryptocurrency markets weakened, and Treasury yields plunged due to increased demand for safer investments.

Looking ahead, the market is likely to remain volatile as investors digest the implications of the new tariffs and anticipate potential retaliatory measures from affected countries. Upcoming economic data releases, including the Consumer Price Index (CPI) and initial jobless claims, will be closely monitored for signs of inflationary pressures and labor market health. Additionally, corporate earnings reports in the coming weeks will provide further insights into how companies are navigating the current economic landscape.

Steady Hands in Shifting Markets

Wed, 19 Mar 2025 21:20:00 GMT

This week, the financial landscape has been shaped by pivotal developments, notably the Federal Reserve's policy decisions and dynamic stock market movements. As your dedicated financial advisors, we aim to distill these events to provide clarity on their implications for your financial strategies.

Federal Reserve's Policy Stance

Wednesday March 19, 2025, the Federal Reserve announced the decision to maintain the federal funds rate within the 4.25% to 4.5% range, citing heightened economic uncertainty. This pause reflects the Fed's cautious approach amidst evolving economic indicators. Notably, inflation projections have been adjusted upward to 2.7% from the previous 2.5%, influenced by recent tariff implementations under the current administration. Concurrently, GDP growth forecasts have been revised downward to 1.7% from 2.1%, signaling tempered economic expansion expectations.

In a strategic move to ensure market stability, the Fed will decelerate the reduction of its $6.8 trillion asset portfolio starting in April. This adjustment aims to mitigate potential disruptions, especially in light of the approaching federal debt ceiling deliberations.

Stock Market Performance

The stock market has exhibited notable volatility in response to these economic signals. As of March 19, 2025, the Dow Jones Industrial Average experienced an uptick, rising by approximately 1.10% (459.08 points) to reach 42,040.39. This positive movement reflects investor optimism following the Fed's decision to maintain interest rates.

Conversely, the Nasdaq Composite faced downward pressure, declining by 4% earlier this month amid escalating recession concerns. This divergence underscores the market's sensitivity to economic indicators and sector-specific dynamics.

Sector Highlights

Technology : Companies like Tesla and Nvidia have experienced stock price fluctuations, reflecting broader market volatility.
Financials : Major banks, including Bank of America and JPMorgan, have faced stock price declines amid uncertainty surrounding Federal Reserve interest rate policies.

Economic Indicators

Recent data presents a mixed economic picture. While industrial production has shown resilience, other indicators suggest potential headwinds. For instance, a survey from the New York Federal Reserve highlighted deteriorating business conditions and rising input costs, signaling challenges ahead.

Implications for Investors

The current economic environment necessitates a balanced investment approach. The Fed's decision to hold interest rates steady, coupled with revised inflation and growth forecasts, suggests a period of cautious optimism. Investors are advised to monitor developments in trade policies and their potential impact on inflation and corporate earnings. Diversification across asset classes and sectors remains a prudent strategy to navigate potential market fluctuations.

Looking Ahead

As we move forward, attention will focus on upcoming economic data releases and corporate earnings reports, which will offer further insights into the economy's trajectory. Staying informed and adaptable will be key to capitalizing on emerging opportunities while mitigating risks.

Market Flash | Affinity Capital

Mon, 10 Mar 2025 22:36:00 GMT

Quite a day in the markets.

Starting two weeks ago, we have sold several tech-heavy positions in all client portfolios. We have also maintained much higher-than-normal cash levels in all client accounts in anticipation of increased volatility. We believe the portfolio management decision to keep so much “dry powder” in our portfolios will prove beneficial.

We have felt the markets and especially the “Magnificent Seven Tech Stocks” were somewhat overvalued even before the election. Keep in mind the markets have seen record highs in just the last few months and a good flushing of the pipes is not necessarily a bad thing. What we watch for are clues to whether the short-term market is just correcting or whether the integrity of the market dynamic is shifting in a mid / long term way. We are looking at rebalancing alternatives and uses for cash … but … we do not want to be out of position for a rebound. With this in mind, we will need to work through volatility, rebalance and maintain our focus as long-term investors

Our view on the major market Indices:

The tech-heavy Nasdaq will likely see another 5% to 9% downside.
The Dow Jones Industrial Average has reached a support level. While we would like to see it hold here, the next drop could be another 4.5% to 5 %. For perspective that would be in the area of another 2000 points to the downside – which sounds a bit scarier than 5%
The S&P 500 may see another 5% to the downside.

Following these types of selloffs, the market can bounce strongly and then may go back down to “test” the previous lows. As mentioned above, we need to work through volatility and maintain our focus as long-term investors.

What is driving the markets?

We look for the “Tariff Volatility” to be priced into the market by the end of 2nd quarter. Good or bad is a separate issue. It is the fear of the unknown that drives volatility.
We see the tax bill in congress as an overall positive for the markets. That unknown should have clarity by the end of the 2nd quarter as well.
Another congressional Continuing Resolution to stave off a government shutdown is an added market driver although historically, these have not caused much economic stress. The timing, however, is compounding the market volatility.
Two huge tech giants started the ball rolling downhill. Nvidia announced a massive earnings beat, an increase to its dividend, and reported a 262% surge in year-over-year revenues and Wall Street is worried they cannot do better going forward. Tesla with the “Elon factor” and reduced government investment in electric cars is pushing Tesla down. NVIDIA will find a bottom and continue to be a market leader – Tesla, not so sure. Wait and see. The rest of big tech is caught in the undercurrent but remain very healthy companies.
Recession signals are starting to flash brighter although the bond market has been waving a red flag for quite a long time now. Plus, the recent weak economic data does not yet reflect the government workers and contractors that may be driving unemployment numbers going forward while recognizing that government job creation has favored employment data in recent years. We do note that markets can still perform well during a recession. Stagflation is a bigger concern but that is a more involved discussion.
We will defer comment on the multitude of other hopefully, (hope is not a strategy but I will use the term just this once), temporary headwinds of market, policy, and political dramas. … We live in interesting times!

Please feel free to call. We appreciate the opportunity to serve you.

Market Update: Trends and Trade Impact

Thu, 06 Mar 2025 21:54:00 GMT

This week, the U.S. stock market has experienced notable volatility, primarily influenced by escalating trade tensions and their potential economic repercussions. As of March 5, 2025, the SPDR S&P 500 ETF Trust (SPY) is trading at $575.75, reflecting a slight decrease of 0.19% from the previous close. The Dow Jones Industrial Average ETF (DIA) shows a modest uptick of 0.10%, trading at $425.98. Conversely, the Invesco QQQ Trust (QQQ), representing major tech stocks, has declined by 0.35% to $493.80.

The technology sector has been particularly sensitive to these developments. Apple Inc. (AAPL) has seen a decline of 2.11%, now trading at $230.95. Tesla Inc. (TSLA) has also faced downward pressure, with its stock decreasing by 0.62% to $270.36. In contrast, Microsoft Corporation (MSFT) has managed a modest gain of 0.76%, reaching $391.58, while Amazon.com Inc. (AMZN) is up by 0.67% at $205.16.

As a response to our concerns regarding the tech sector, we have sold numerous positions within your portfolios and are reviewing new areas of investment.

The primary catalyst for this market volatility is the recent announcement by President Trump to impose a 25% tariff on imports from Canada and Mexico, alongside additional tariffs on Chinese goods. These measures have raised concerns about a potential trade war and its implications for the global economy. Economists warn that such tariffs could lead to stagflation—a scenario characterized by stagnant economic growth coupled with rising inflation. This concern is underscored by recent data indicating a slowdown in consumer spending and a dip in consumer confidence.

The Federal Reserve faces a challenging environment, as it must balance the need to control inflation with the imperative to support economic growth. The prospect of stagflation complicates monetary policy decisions, as traditional tools may be less effective in such a scenario. Investors are advised to monitor upcoming Federal Reserve communications for insights into potential policy adjustments.

Looking ahead, the market is likely to remain sensitive to developments in trade negotiations and economic indicators. Companies heavily reliant on international supply chains may experience increased volatility, making diversification and a focus on fundamentally strong companies prudent strategies for investors.

Tariffs Hit, Inflation Sticks—What It Means for Your Money

Thu, 20 Feb 2025 20:07:00 GMT

This week, the U.S. stock market exhibited cautious resilience despite facing a series of economic uncertainties and policy shifts. The S&P 500 remained relatively stable, closing at 6,068.50, a modest increase of 2.06 points. The Dow Jones Industrial Average experienced a slight uptick of 0.3%, ending at 44,593.65, while the Nasdaq Composite saw a minor decline of 0.4%, finishing at 19,643.86.

A significant development influencing market sentiment was President Donald Trump's announcement of a 25% tariff on all foreign steel and aluminum imports. This policy move, aimed at protecting domestic industries, raised concerns about potential trade wars and increased costs for U.S. consumers. Despite these apprehensions, the market's reaction remained muted, suggesting that investors are cautiously assessing the long-term implications of such trade policies.

The bond market also experienced notable activity, with the 10-year Treasury yield recording its largest one-day increase of 2025. This surge followed the release of January's Consumer Price Index (CPI), which indicated a 0.5% rise, bringing the annual inflation rate to 3%. The core CPI, excluding food and energy, increased by 0.4%, reaching an annual rate of 3.3%. These figures suggest persistent inflationary pressures, prompting investors to reassess expectations regarding Federal Reserve policies. Federal Reserve officials have indicated the need for further progress on inflation before considering any rate cuts, emphasizing a cautious approach in light of prevailing economic uncertainties.

Looking ahead, the market's focus is expected to remain on economic indicators and policy decisions. The recent CPI data, coupled with the implementation of new tariffs, will be closely monitored for their potential impact on international trade dynamics and corporate earnings. Additionally, concerns about 'stagflation'—a combination of sluggish growth and persistent inflation—have emerged, driven by stubborn inflation and hard-line trade policies. Investors are advised to stay informed about these developments, as they could influence market volatility and investment strategies in the coming weeks.

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. Whether navigating market shifts, economic policies, or investment strategies, our focus remains on helping you achieve long-term financial security and growth.

Stocks Steady, Inflation Climbs and Tariffs Shake Markets

Thu, 13 Feb 2025 18:11:00 GMT

This week, the U.S. stock market demonstrated resilience in the face of significant economic developments. The S&P 500 remained relatively stable, closing at 6,068.50, a slight increase of 2.06 points. The Dow Jones Industrial Average rose by 0.3%, ending at 44,593.65, while the Nasdaq Composite experienced a 0.4% decline, closing at 19,643.86.

A major event influencing the markets was President Donald Trump's announcement of a 25% tariff on all foreign steel and aluminum imports. Despite concerns about potential trade wars and increased costs for U.S. consumers, the market's reaction was muted. Investors appeared to interpret the tariffs as a strategic move, possibly aimed at renegotiating trade terms, rather than an immediate economic threat.

In corporate news, Coca-Cola reported robust earnings, leading to a significant rise in its stock price. The company's strong performance contributed to the Dow's gains and highlighted the resilience of consumer staples in the current economic environment.

On the technology front, Tesla's stock faced a notable decline of over 6%. This downturn was attributed to uncertainties surrounding CEO Elon Musk's potential involvement in purchasing OpenAI, raising concerns about his focus and the company's strategic direction.

The bond market also saw significant movement, with the 10-year Treasury yield experiencing its largest one-day increase of 2025. This surge followed the release of January's Consumer Price Index (CPI), which indicated a 0.5% rise, bringing the annual inflation rate to 3%. The core CPI, excluding food and energy, increased by 0.4%, reaching an annual rate of 3.3%. These figures have led investors to reassess expectations regarding Federal Reserve policies, with some speculating on potential rate hikes in the near future.

Looking ahead, the market's focus will likely remain on economic indicators and policy decisions. The recent CPI data suggests that inflationary pressures persist, which could influence the Federal Reserve's stance on interest rates. Additionally, the implementation and global response to the new tariffs will be closely monitored, as they have the potential to impact international trade dynamics and corporate earnings.

Investors are advised to stay informed about these developments and consider the potential implications for their portfolios. Diversification and a focus on fundamentally strong companies may provide resilience against market volatility stemming from policy changes and economic shifts.

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. Whether navigating market shifts, economic policies, or investment strategies, our focus remains on helping you achieve long-term financial security and growth.

Tech Turmoil, Trade Tensions and Market Moves: What Investors Need to Know This Week

Thu, 06 Feb 2025 15:54:00 GMT

This week, the U.S. stock market has experienced notable volatility, shaped by significant developments in the technology sector and rising international trade tensions. As your financial advisors, we see these market shifts as critical reminders of the interconnectedness between technology innovation, geopolitics, and investor sentiment.

At the close of trading on February 5, 2025, the major indices displayed a mixed performance. The S&P 500 made only a fractional gain, reflecting cautious investor optimism. The Dow Jones Industrial Average showed a modest rise, while the tech-heavy Nasdaq Composite managed a slight uptick despite early week turbulence.

One of the most significant developments was the substantial disruption in the technology sector, sparked by the emergence of DeepSeek, a free AI alternative from China. This innovation caused shockwaves across the industry, leading to a sharp decline in NVIDIA's market valuation by $589 billion. As NVIDIA’s competitors reevaluate their AI strategies, the ripple effects are being felt across semiconductor and cloud computing stocks. Investors who have leaned heavily into AI-focused stocks must now rethink their exposure and possibly diversify to mitigate risks.

The market’s apprehension wasn’t confined to the tech sector. The announcement of new U.S. trade tariffs created uncertainty. Although agreements with Mexico and Canada delayed immediate impacts, the potential long-term effects on manufacturing and exports cannot be ignored. In my professional view, these developments signal a period where companies with significant international exposure may face headwinds.

Currency fluctuations added another layer of complexity. The U.S. dollar has surged by more than 7% against a basket of major currencies since September. This strength, driven by rising bond yields and robust U.S. economic growth, has nearly pushed the euro to parity with the dollar. For American consumers and businesses importing goods, this might provide short-term benefits. However, exporters could find their products less competitive abroad, a factor that may weigh on earnings reports in upcoming quarters.

On the bright side, the broader economy shows resilience. GDP growth remains near its short-run potential, unemployment rates are low, and consumer spending is robust. The resurgence of manufacturing, particularly in AI-related sectors, hints at long-term growth opportunities despite current market turbulence.

As we look ahead, we must brace for continued market volatility. The swift emergence of new AI technologies underscores the importance of diversification and a cautious investment strategy. While it’s tempting to chase the latest tech trend, a balanced portfolio remains the best defense against market shocks. Furthermore, the evolving trade landscape demands close monitoring. Policy changes can have swift and significant impacts, making it essential for investors to stay informed and agile. Companies with strong domestic operations and less exposure to international trade risks may provide safer havens during this period.

While the market faces challenges from technological disruptions and geopolitical uncertainties, strong economic fundamentals offer a measure of stability. 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.

Tech Leads the Charge: This Week's Market Highlights

Thu, 23 Jan 2025 21:03:00 GMT

The stock market saw a solid week of gains, driven by a resurgence in the technology sector and tempered by mixed signals from economic data and Federal Reserve commentary. The S&P 500 rose 1.2%, supported by strength in growth-oriented sectors like technology and communication services, while the Dow Jones Industrial Average added 0.7%, boosted by consumer staples and industrials. The Nasdaq Composite led the major indices, surging 2.3% as investors gravitated toward risk-on assets.

Tech stocks were the standout performers, with Microsoft and Netflix leading the rally. Microsoft reported robust growth in its cloud computing division, reassuring investors about its future earnings potential. Netflix, meanwhile, exceeded subscriber growth expectations, signaling resilience in the face of increased competition. Tesla also made headlines, climbing 7.4% on strong sales data from China and optimistic delivery projections. Apple joined the upward trend, gaining 3.8% as reports highlighted stronger-than-expected demand for its latest iPhone.

Economic data played a pivotal role in shaping market sentiment. December’s Consumer Price Index (CPI) revealed a 0.3% monthly increase, aligning with expectations and fueling optimism that inflation may be moderating. At the same time, a drop in weekly jobless claims pointed to a resilient labor market, though concerns about wage-driven inflation persisted. These dynamics left investors cautiously optimistic about the Federal Reserve’s next moves.

While hopes for a potential pause in interest rate hikes buoyed the market, hawkish statements from Fed officials served as a reminder that monetary tightening may not be over. This tempered gains midweek, especially in the energy sector, which faced additional pressure from declining oil prices. Crude fell 1.5% amid diplomatic talks aimed at stabilizing global production, dragging down stocks like ExxonMobil, which ended the week 4.2% lower.

Looking ahead, we are bracing for continued volatility as corporate earnings season unfolds and key economic reports, including GDP and housing market data, are released. The rotation into growth stocks suggests rising optimism, but caution remains warranted given the lingering uncertainties. Staying diversified and closely monitoring macroeconomic trends will be essential for navigating the markets in the weeks to come.

As always, we encourage your questions and are here to support you. It’s our privilege to partner with you and your family, offering guidance and strategies that embody our commitment to "Wealth Management for Life."

Market Movers And Bold Trends: The Big Stories Shaping 2024 and Beyond

Tue, 14 Jan 2025 13:26:00 GMT

As 2024 concluded, global financial markets exhibited a year of resilience and dynamism amid evolving macroeconomic and geopolitical conditions. The fourth quarter, in particular, capped off a year of mixed performance across major indices, driven by persistent inflationary pressures, central bank policy decisions, and sector-specific developments.

Q4 2024 Key Market Movements

In Q4, the S&P 500 posted a modest gain of 3.2%, finishing the year up 12.7%. Gains were led by the technology, healthcare, and consumer discretionary sectors. The NASDAQ Composite , a proxy for technology-heavy stocks, outperformed with a quarterly increase of 5.1%, securing a robust 18.4% annual return. Meanwhile, the Dow Jones Industrial Average underwhelmed, rising just 1.8% in Q4 and delivering a more subdued annual return of 6.3% as industrials and energy sectors faced headwinds.

Sector Highlights

Technology and AI : The AI boom, which began in 2023, continued to dominate market narratives. Companies like Nvidia and Microsoft drove gains in the sector, with Nvidia reporting record revenues from its AI chip sales. The technology sector benefited from renewed corporate investment in digital transformation and AI-driven innovation.

Healthcare Resurgence : The healthcare sector rebounded strongly, aided by breakthroughs in biotech and pharmaceutical innovation. Stocks such as Pfizer and Moderna gained momentum following regulatory approvals of next-generation treatments.

Energy Weakness : Crude oil prices declined in Q4 as global demand forecasts were revised downward. Energy majors like ExxonMobil and Chevron saw their shares retreat despite cost-cutting measures and strategic diversification into renewables.

Consumer Discretionary Strength : Holiday spending and robust e-commerce growth boosted retail giants such as Amazon (+8% in Q4). Consumer sentiment held steady despite higher borrowing costs, supported by wage growth and a resilient labor market.

2024 Overall Market Analysis

Inflation and Central Bank Actions : Throughout 2024, the Federal Reserve maintained a hawkish stance, raising interest rates two more times in the first half to combat sticky inflation. By Q3, inflation showed signs of cooling, prompting a pause in rate hikes. This pivot bolstered equity markets, especially growth-oriented sectors, as bond yields stabilized.

Economic Resilience : Despite fears of a recession early in the year, the U.S. economy demonstrated resilience. GDP grew by 2.1% annually, driven by robust consumer spending and a recovery in business investments. However, cracks appeared in the housing market, where higher mortgage rates dampened activity.

Geopolitical Tensions : Markets faced intermittent volatility due to geopolitical concerns, including trade disputes with China and renewed tensions in the Middle East. These events pressured energy markets and heightened investor caution in emerging markets.

Outlook for 2025

As we enter 2025, several factors will influence market dynamics:

Fed Policy Direction : The Federal Reserve is likely to maintain a cautious approach, with markets closely watching inflation trends and employment data. Any unexpected rate adjustments could shift market sentiment.

Corporate Earnings Growth : Analysts expect earnings growth to stabilize, with sectors like technology and healthcare likely to lead. However, cyclical sectors such as industrials and energy may continue to face challenges.

Geopolitical Developments : Trade relations with China, energy market stability, and emerging market growth will be critical variables. Investors should monitor global supply chain developments and international policy shifts.

Consumer Behavior : A potential slowdown in consumer spending due to higher interest rates could affect retail and discretionary sectors. However, sectors tied to essential goods and services may outperform.

Investment Implications and Recommendations

Given the prevailing market conditions, diversification remains key. Technology and healthcare offer attractive long-term growth opportunities, while defensive sectors such as utilities and consumer staples provide stability amid uncertainties. Fixed-income assets, particularly investment-grade bonds, are appealing as yields remain elevated. Additionally, international equities, particularly in developed markets, could offer diversification benefits.

As always, we welcome your questions and are here to support you. It is a privilege to partner with you and your family in planning for your financial future—providing guidance for wealth management that lasts a lifetime.

Navigating Government Shutdowns: What You Need to Know

Fri, 20 Dec 2024 22:54:00 GMT

As we continue to navigate the complexities of the financial landscape, it’s important to understand the potential impact of government shutdowns on markets and our investments. While not to downplay the seriousness of these events, they can often be blown out of proportion by the media, attracting attention for ratings rather than reflecting the true economic impact.

Historically, government shutdowns have had a surprisingly limited effect on financial markets. Shutdowns occur when Congress fails to pass funding legislation for federal agencies and programs, leading to the partial closure of government operations. In the past, these events have created short-term volatility, but the long-term impact on the markets has been minimal.

For instance, during the longest government shutdown in U.S. history, which lasted 35 days in 2019, the stock market experienced some fluctuations. However, the overall effect was relatively minor, with the S&P 500 index showing resilience. The Congressional Budget Office estimated that this shutdown cost the economy $3 billion in lost economic activity, a significant amount but not enough to derail the broader market trends.

One reason for the limited market impact is that essential services and critical payments continue to operate during a shutdown. Social Security checks, military operations, and interest payments on the national debt are unaffected. However, some services, such as national parks, food inspections, and various federal offices, do experience disruptions.

Government workers who are furloughed during a shutdown typically receive back pay once the government reopens. While this can cause short-term financial uncertainty for those workers, they are ultimately compensated for the time missed.

Looking at the history of government shutdowns, we see that they are not new phenomena. Since the modern budget process was established in the 1970s, there have been multiple shutdowns of varying lengths. These events often stem from political disagreements and are usually resolved through negotiations and compromise. The timeline for each shutdown varies, but most have lasted only a few days to a couple of weeks, with the 2019 shutdown being a notable exception.

As your investment advisor, we remain vigilant and proactive in managing your portfolio through these potential disruptions. We monitor the situation closely and make necessary adjustments to ensure your investments remain well-positioned to weather any short-term volatility. It's crucial to remember that while government shutdowns can cause temporary disruptions, they rarely have a lasting impact on the financial markets.

In conclusion, government shutdowns may capture headlines and cause concern, but their long-term effects on markets and the economy are generally limited. By staying informed and maintaining a long-term perspective, we can navigate these challenges together and continue to achieve your financial goals. If you have any questions or concerns, please do not hesitate to reach out to us.

Thank you for your continued trust and confidence in our services.

Market Pullback: Tech Giants Lead Decline Amid Anticipation of Fed's Rate Decision

Wed, 18 Dec 2024 21:47:00 GMT

On Tuesday, December 17, 2024, U.S. stock markets experienced a modest retreat, with major indices pulling back from their recent record highs.

Market Performance Overview

Dow Jones Industrial Average (DJIA) : The DJIA declined by 0.6%, shedding 267 points to close at 43,828.06. This marks the index's ninth consecutive loss, the longest losing streak since 1978.
S&P 500 : The S&P 500 fell by 0.4%, ending the session at 6,074.08. Despite the decline, the index remains near its all-time high, reflecting sustained investor optimism.
Nasdaq Composite : The tech-heavy Nasdaq slipped by 0.3%, closing at 20,173.89. The index had reached a record high in the previous session, driven by gains in major technology stocks.

Key Stock Performances

Nvidia Corporation (NVDA) : Nvidia's stock declined by 1.28%, marking its eighth drop in nine days. Concerns over potential production delays and reduced demand from key clients, such as Microsoft, have weighed on the stock.
Tesla Inc. (TSLA) : In contrast, Tesla's shares surged by 3.61% to $479.86, following a bullish analyst forecast that reinforced investor confidence in the company's growth prospects.
Apple Inc. (AAPL) and Microsoft Corporation (MSFT) : Both tech giants experienced modest gains, with Apple rising by 0.93% to $253.48 and Microsoft increasing by 0.67% to $454.46, contributing to the Nasdaq's strength.

Market Drivers and Economic Indicators

Federal Reserve Policy : Investors are keenly awaiting the Federal Reserve's interest rate decision, with expectations of a rate cut to support economic growth. The anticipation of monetary easing has been a significant factor influencing market movements.
Retail Sales Data : November's retail sales showed a modest increase, indicating sustained consumer spending, a critical component of economic growth.
Market Sentiment : Despite recent gains, investor sentiment remains cautious due to concerns over tech valuations, inflationary pressures, and potential trade issues.

Implications for Future Trading Days

Tech Sector Outlook : The technology sector continues to be a primary driver of market performance. However, valuations are elevated, and any negative news, such as production delays or decreased demand, could lead to increased volatility.
Monetary Policy Impact : The Federal Reserve's upcoming decision on interest rates will be pivotal. A rate cut could provide further support to the equity markets, while any deviation from expectations may introduce uncertainty.
Economic Data Monitoring : Investors should closely monitor upcoming economic indicators, including employment data and consumer confidence reports, to gauge the economy's health and potential market implications.

The U.S. stock market exhibits a complex interplay between bullish momentum in the technology sector and broader market caution influenced by economic indicators and monetary policy expectations. At Affinity Capital, we stay vigilant in monitoring economic trends and evaluating their potential impact on your investments. Our proactive approach focuses on regular portfolio reviews and thoughtful adjustments to ensure your strategy aligns with your financial goals and risk tolerance.

If you have any questions or concerns about the markets or your investment plan, please don’t hesitate to reach out. We’re here to provide clarity and support whenever you need it.

Market Momentum: A Bullish Close to 2024 Fuels Optimism for 2025 But Challenges and Risks Deserve Our Attention

Wed, 11 Dec 2024 21:52:00 GMT

Let's chat about the market's latest moves and why we're feeling optimistic about 2025. While we're pleased with our risk-adjusted performance this year, as your Portfolio Manager, we always maintain a steadfast focus on potential risks to your hard-earned assets.

The U.S. stock market has been on a roll this December, wrapping up a solid year led primarily by the Magnificent 7 stocks – Amazon, Apple, Alphabet (Google), Meta (Facebook), Nvidia, Microsoft, and Tesla. This surge is thanks to strong economic fundamentals, easier monetary policy, and most importantly, a huge boost from AI innovation. However, the oversize impact of just seven stocks is a concern. Going forward, we do anticipate a broader market, barring any unforeseen events.

Recent Market Movements

Here's the scoop on what's been happening lately:

Indices Performance : The S&P 500 and the Dow Jones Industrial Average remain strong, showing signs of a broader market rally. Meanwhile, the Nasdaq took a tiny step back due to some profit-taking in tech stocks.
Sector Winners and Losers : Financials, industrials, and small company stocks have been strengthening since the election. Tech stocks, especially AI-focused ones like Nvidia, have been on fire, though they're cooling off a bit now. We do note that our Affinity Capital Portfolios have been weighted towards technology for most of 2024.

Factors Driving the Market

So, what's fueling this market magic?

Economic Strength : The U.S. economy grew by 2.8% in Q3, thanks to strong consumer spending and positive vibes from indicators like the NFIB Small Business Optimism Index. However, the reliance on government job creation and overall government spending to power the economy remains a concern.
Stock Buybacks : Stock buybacks occur when a company buys back its own shares from the marketplace. This reduces the number of outstanding shares, often leading to an increase in the stock's price. However, there are concerns about their long-term impact and potential for short-term market fluctuations.
Fed Policy : The Federal Reserve cut rates by 75 basis points this year, with another cut likely in December. Lower interest rates make borrowing cheaper and boost stock valuations.
Post-Election Stability : A clear presidential election outcome has boosted confidence. The market loves the new administration's pro-business policies, including potential tax cuts and regulatory easing.
AI Boom : The AI revolution is still going strong, with stocks like Nvidia and Tesla leading the way. It's not just tech; other sectors like utilities and consumer discretionary are also getting in on the action. Look for Affinity Capital portfolio rebalancing to reflect broader market activity.

Challenges and Risks

Of course, it's not all sunshine and rainbows:

Valuation Concerns : The S&P 500’s forward P/E ratio (Price to Earnings) is up to 25.6, which might limit further gains. The long-term average P/E is 16.8. While statistics tend to revert to their mean, these valuations can stay elevated for significant periods.
A Market Correction : During any bull market cycle, market corrections averaging (10%) are normal and healthy. While there have been periods of numerous volatile sell-offs since 2008 where we have made major moves to cash, we believe any sell-off would more likely be an opportunity to rebalance our portfolios.
Cooling Labor Market : While unemployment is low, job creation has slowed, which could impact consumer spending. The high percentage of government job creation versus the private sector remains a concern.
Global Risks : Geopolitical tensions and global growth uncertainties are still wildcards as we head into 2025.

Outlook and Implications

Looking ahead, the market seems set for more gains in early 2025, thanks to positive economic momentum and supportive Fed policy. But let's not get too comfy—valuation risks and potential external shocks are still out there. A balanced portfolio with a mix of growth and value stocks, plus diversified sector allocations, can help manage risks while still seizing opportunities.

While 2024's bullish momentum has set a high bar, the foundation looks solid for more growth, even if it's a bit more measured.

At Affinity Capital, we're all about keeping an eye on economic trends and how they might affect your investments. We regularly review your portfolio and make strategic adjustments to keep your investment plan aligned with your financial goals and risk tolerance.

Got questions or concerns about the markets or your investment strategy? Don't hesitate to reach out. We're here to provide clarity and guidance whenever you need it.

Stock Market Update: Recent Performance and Outlook

Wed, 04 Dec 2024 18:10:00 GMT

Over the past few days, major U.S. stock indices exhibited mixed performance as markets processed a combination of robust corporate earnings, economic data releases, and Federal Reserve policy signals. Here's a closer look:

Market Movements

Dow Jones Industrial Average (DJIA): The Dow maintained its resilience, driven by gains in the consumer staples and healthcare sectors. Notable performers included Procter & Gamble (+2.54%) and UnitedHealth (+1.79%), buoyed by consistent demand and strong healthcare plan growth. However, industrials like Caterpillar faced headwinds, dropping 3.63% due to concerns about global construction activity .
S&P 500: The index closed near the 6,000 mark, showcasing broad-based performance. Gains in energy (e.g., Range Resources , +7.38%) and technology (e.g., Tesla , +8.19%) reflected stabilizing commodity prices and positive EV sector sentiment. Conversely, financials, including SVB Financial , faced sharp declines amid liquidity and interest rate challenges .
NASDAQ Composite: Tech-heavy NASDAQ saw divergent trends. While cybersecurity firms like Fortinet surged (+10.01%) on heightened demand, Chinese tech companies like JD.com struggled, shedding 6.88% due to uncertainties surrounding China's economic recovery .

Key Drivers Behind Movements

Earnings Season: Strong quarterly results from major players like Tesla and Procter & Gamble underpinned sectoral gains, highlighting robust consumer spending and innovative momentum in tech and EV industries .
Federal Reserve Policy: The Fed's continued focus on interest rate management played a crucial role. Growth-oriented sectors, particularly tech, remained sensitive to rising rates, which increase borrowing costs and pressure profit margins .
Global Economic Concerns: Slowing demand from China weighed on industrial and tech stocks, reflecting broader challenges in global trade and supply chain dynamics .

Forecast and Implications

Looking ahead, the market is likely to remain sensitive to upcoming inflation data and Fed communications.

Technology and Innovation: Companies in AI, cybersecurity, and renewable energy sectors could see continued investor interest, driven by demand for digital transformation and sustainability initiatives. However, volatility may persist due to regulatory and macroeconomic uncertainties.
Defensive Sectors: Healthcare and consumer staples within the Dow may continue to provide stability, especially for investors seeking lower-risk options amid fluctuating interest rates.
Energy and Materials: Stabilizing commodity prices could offer opportunities in energy stocks, but industrials tied to global construction and manufacturing might face ongoing challenges .

At Affinity Capital, we are committed to staying abreast of economic developments and assessing their potential effects on your investments. Our proactive approach emphasizes regular portfolio reviews and strategic adjustments to ensure your investment strategy remains aligned with your financial goals and comfort with risk.

As always, if there is anything on your mind regarding the markets and your strategy, please contact us and we will connect to discuss.

Stock Market All-Time Highs: The Election and Fed Meeting

Thu, 14 Nov 2024 19:50:00 GMT

Last week was rewarding for long-term investors, with election results and a Fed meeting providing the catalysts to boost several major stock indexes to all-time highs. Summarizing last week’s trading, the large-cap S&P 500 gained 4.66%, the Nasdaq 100 increased by 5.41%, and the Dow Jones Industrial Average rose by 4.61%. All three of these indexes made fresh weekly all-time-high closes.

Election Boost: S&P 500 Crosses Above 6,000

As last Tuesday's election results were finalized, markets had one thing on their mind: higher stock prices. Wednesday brought us a sharp rally in major stock indexes as government bonds dropped and yields rose. The broadest benchmark of the U.S. economy, the S&P 500 crossed the key psychological level of 6,000 and settled slightly beneath it to close out the week. Long-term investors will take it!

Federal Reserve (Fed) Rate Cut

As widely expected, the Fed cut the benchmark rate by 25 basis points at last week's November meeting — no surprises there. The move is the follow-up to the central bank’s large 50-basis-point cut in September, which brings the current target lending rate range to 4.50% - 4.75. The rate cut vote was unanimous. The move supports the labor market, with further data needed to gauge the current state of inflation. Major stock indexes were steady after the rate decision and subsequent Fed commentary, and stocks closed positively on the day as bond yields traded lower after being higher the day before.

Powell Press Conference

Fiscal Policy: As usual, attention turned to Federal Reserve Chair Jerome Powell’s 2:30 PM press conference after the 2:00 p.m. rate decision release last Thursday. Powell had some memorable responses during the Q&A session, notably some commentary on overall fiscal policy. “The federal government’s fiscal path, fiscal policy, is on an unsustainable path,” Powell said. “The level of our debt relative to the economy is not unsuitable, the path is unsustainable…. And we see that in a very large deficit, you’re at full employment [and] that’s expected to continue, so it’s important that be dealt with,” Powell added. “It is ultimately a threat to the economy.”

“Not Permitted Under Law”: It is widely known that relations between President-Elect Donald Trump and Powell may not be the most amicable, and the question about it came up during last week's presser. When asked if he would step down if the President-elect asked him to, Chair Powell’s response was a resounding, and short: “No.” Questions surrounding the topic surfaced again later in the conference, with another reporter asking if the president-elect had the authority to fire or demote Powell. The Fed chair responded that such an action is “not permitted under law.”

Volatility Fizzles

The most widely watched measurement of stock market volatility, the $VIX, dropped substantially on the heels of the election results and the Fed rate cut. The $VIX, aka Fear Index, closed under $15.00 last week — trading near the summer 2024 lows, indicating investor fear leaving the marketplace. After a down week for volatility and the $VIX declining by over 30% last week, are investors too optimistic in the short term? Objectively, much uncertainty was removed from markets last week, with known election outcomes and a known Fed decision. It will be about the Consumer Price Index (CPI) this week, and we will see how volatility reacts after the best week of 2024 for the S&P 500 and the Dow.

Consumer Sentiment

With all the talk last week surrounding elections and the Fed, what about the consumer? Fresh University of Michigan consumer sentiment data shows the consumer once again remaining resilient and cautiously optimistic. The UoM November consumer sentiment metric rose to a print of 73.0 versus 71.0 expected, much better than estimates.

This Week = CPI

It is that time in the data release cycle, and traders want to know where the nation stands on inflation. With the 25-basis-point cut in the books and government bond yields rising on the open market recently overall, eyes will be peeled on this all-important inflation metric being released this Wednesday morning.

The Takeaway

The start of November is very constructive for long-term investors. With the election out of the way and the market response looking favorable, attention will now shift back to inflation data and the direction of future Fed policy. This week has the data releases (PPI, CPI) that are needed to shape near-term market direction and consensus after a stellar run in major stock market indexes in October and to start in November. November is historically a good month for stock indexes. Bond yields and the U.S. dollar are also in focus right now. We will be staying on top of the latest developments to keep you informed.

As always, if there is anything on your mind regarding the markets and your strategy, please contact us and we will connect to discuss.

Key Takeaways from the Fed Rate Cut

Fri, 08 Nov 2024 16:29:00 GMT

The Federal Reserve's decision to cut the federal funds rate is a significant development with far-reaching implications for the U.S. economy. Here's a deep dive into the key takeaways and the rationale behind this move:

Key Takeaways

Moderate Rate Cut: The Fed opted for a 25 basis point reduction, a move that signals a cautious approach to further monetary easing. This smaller cut compared to the previous half-point reduction suggests that the central bank is closely monitoring economic data and may adjust its policy stance accordingly.
Focus on Inflation: While inflation has been cooling down, it remains a key concern for the Fed. The central bank aims to strike a balance between stimulating economic growth and preventing a resurgence of inflationary pressures.
Uncertainty Remains: Despite the recent positive economic indicators, the Fed acknowledges that uncertainties persist. Potential risks include geopolitical tensions, trade disputes, and the evolving global economic landscape.

Reasons for the Rate Cut

Cooling Inflation: The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, has been trending downward. This decline in inflation provides some breathing room for the central bank to ease monetary policy without jeopardizing its price stability mandate.
Robust Labor Market Metrics: The Bureau of Labor Statistics show the labor market continuing to show strength, with low unemployment rates and solid job growth. However, the Fed is mindful of the potential for wage pressures to contribute to inflation in the long run.
Economic Growth Concerns: While the economy has been resilient, there are concerns about the sustainability of the current growth trajectory. A rate cut can help boost business investment, consumer spending, and overall economic activity.
Global Economic Headwinds: The ongoing trade tensions and geopolitical uncertainties have created a challenging environment for global economic growth. A rate cut can help mitigate the impact of these external shocks on the U.S. economy.

Financial Advisor's Perspective

The Fed's rate cut has important implications for investors and consumers. For investors, lower interest rates can boost stock prices, as companies can borrow at cheaper rates to fund expansion and dividends. However, it's crucial to remember that the impact on individual stocks will vary depending on their specific business models and exposure to interest rates.

For consumers, lower interest rates can lead to lower borrowing costs for mortgages, auto loans, and credit cards. However, it's important to note that the full impact of the rate cut on consumer spending may take some time to materialize. Additionally, lower interest rates can also reduce the returns on savings accounts and certificates of deposit.

At Affinity Capital, we stay updated on economic developments and their potential impact on your portfolios. We support regular portfolio reviews and adjustments to ensure that your investments are aligned with your financial goals and risk tolerance.

We look forward to meeting with you soon to discuss your most recent quarterly reports. Please don’t hesitate to call with any questions and to discuss your portfolios.

A Look Ahead: Market and Economic Outlook

Wed, 06 Nov 2024 22:44:00 GMT

The markets and the economy are complex systems with many moving parts. While there are always uncertainties, it's important to maintain a long-term perspective.

Market Outlook:

Interest Rates: The Federal Reserve's monetary policy will continue to be a key driver of market movements. As inflation pressures ease, we may see gradual interest rate reductions, which could positively impact the broader market.
Economic Growth: The US economy is showing resilience, with strong job growth and consumer spending. However, global economic conditions, geopolitical tensions, and potential supply chain disruptions remain as risks.
Sector Rotation: We may see a rotation from high-growth tech stocks to more value-oriented sectors like energy, financials, and industrials as economic conditions stabilize.
Volatility: Short-term market volatility is likely to persist due to various factors, including earnings reports, geopolitical events, and changes in investor sentiment.

Economic Outlook:

Inflation: While inflation has moderated, it's crucial to monitor price pressures, especially in areas like energy and food.
Labor Market: The strong labor market is supporting consumer spending, but wage growth needs to be balanced with productivity gains to avoid inflationary pressures.
Fiscal Policy: Government spending and tax policies will play a role in economic growth and market sentiment.
Geopolitical Risks: Ongoing geopolitical tensions, particularly with China, could impact global trade and investment flows.

American Unity:

Despite our differences, we share a common bond as Americans. We are united by our shared values, our commitment to democracy, and our belief in the American Dream. As your portfolio managers, this election has been an anticipated pivot point for economic policy going forward. In the next few days and weeks, we will rebalance our allocations in ways that we feel best serve your needs.

As always, please feel free to reach out to us if you have any questions.

Fed’s Bold Move: What the Rate Cut Means for the Economy and the Market

Wed, 18 Sep 2024 19:57:00 GMT

Today, the Federal Reserve made a significant move by cutting interest rates by 0.50 percentage points, bringing the federal funds rate down to a range of 4.75% to 5%. This decision marks the first rate cut since 2020 and signals a shift in the Fed’s approach as it aims to balance economic growth with inflation control.

Understanding the Fed’s Decision

The Fed’s rate cut is a response to several economic indicators suggesting a slowdown. Despite recent efforts to curb inflation, the labor market has shown signs of weakening, and economic growth has been tepid. By lowering interest rates, the Fed aims to stimulate borrowing and spending, which can help boost economic activity.

Soft Landing

A key term often mentioned in discussions about monetary policy is the “soft landing.” This refers to the Fed’s goal of slowing down the economy just enough to control inflation without triggering a recession. Achieving a soft landing is challenging because it requires precise adjustments to interest rates and other monetary tools. The recent rate cut is part of this delicate balancing act. By easing borrowing costs, the Fed hopes to support economic growth while keeping inflation in check.

Monetary Policy

Monetary policy involves managing the supply of money and interest rates to influence economic activity. The Fed uses tools like interest rate adjustments to achieve its dual mandate of maximum employment and stable prices. The recent rate cut is a clear example of expansionary monetary policy, where the central bank lowers interest rates to encourage borrowing and investment.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a critical measure of inflation, tracking changes in the prices of a basket of goods and services over time. Recent data showed that inflation has cooled to 2.5% annually, close to the Fed’s target of 2%. This progress on inflation gave the Fed more confidence to cut rates. However, the central bank remains vigilant, as inflationary pressures can resurface, especially if economic activity picks up too quickly.

Employment

Employment is another crucial factor in the Fed’s decision-making process. The labor market has shown signs of softening, with slower job creation and rising unemployment claims. By cutting rates, the Fed aims to make borrowing cheaper for businesses, encouraging them to invest and hire more workers. This move is intended to support job growth and prevent a significant rise in unemployment.

Impact on Stocks

The stock market often reacts positively to interest rate cuts, as lower borrowing costs can boost corporate profits and economic activity. Here’s how the recent rate cut might affect different sectors:

Technology and Growth Stocks : These stocks tend to benefit the most from lower interest rates. Companies in these sectors often rely on borrowing to finance their growth, and cheaper credit can enhance their profitability and expansion plans.
Financials : Banks and financial institutions might see mixed effects. While lower rates can reduce the interest income they earn from loans, increased economic activity can lead to higher loan demand, potentially offsetting the impact.
Consumer Discretionary : Lower interest rates can boost consumer spending on non-essential goods and services. This sector includes companies in retail, travel, and entertainment, which may see increased demand as borrowing costs decrease.
Real Estate : The real estate sector often benefits from lower interest rates, as cheaper mortgages can stimulate home buying and real estate investments.
Utilities and Defensive Stocks : These stocks are typically less sensitive to interest rate changes. However, they might still see some positive effects as lower rates can reduce their borrowing costs.

Risks and Considerations

While the rate cut aims to support economic growth, there are risks to consider. If the economy overheats, inflation could rise again, forcing the Fed to reverse course and hike rates. Additionally, prolonged low rates can lead to asset bubbles, as investors seek higher returns in riskier assets.

Conclusion

The Fed’s decision to cut interest rates by 0.50 percentage points reflects its commitment to supporting economic growth while keeping inflation in check. By aiming for a soft landing, the central bank hopes to navigate the delicate balance between stimulating the economy and preventing runaway inflation.

As always, please do not hesitate to reach out to discuss the markets and your portfolios.

Market Correction or Bear Market?

Mon, 05 Aug 2024 19:45:00 GMT

There is no gentle way to express it. The markets look quite ugly right now and it naturally begs the question: is it time to worry? Our answer today is No.

These are normal corrections within a rising market. Now, this obviously will cause concern that a correction may turn into a bear market. We will continue to evaluate the market and economic measures to best position our portfolios going forward.

Corrections are very normal and very necessary for our markets. Remember, the markets were at historic, all-time highs just months ago. Unfortunately, they do not go straight up. As mentioned in past comments, the markets will move two steps forward and one step back and sometimes four steps forward and two steps back. The current long-term market trend remains intact.

A market correction is defined as a drop in value between 10% & 20% and a bear market is greater than 20%.

This is how far the major indexes are from their recent highs:

The Nasdaq Composite is up by 13.7%.
The S&P 500 is down 8.7%.
The Dow Jones Industrial Average is up by 6.3%.

Notable Market Events Over the Years

Keep in mind that with all these market events, we are still coming off historic market highs just this year!

2022: Worst year since 2008 Financial Crisis: S&P 500 down almost 20%, Nasdaq down over 32%

2020: Coronavirus Crash: Dow lost 37% between February and March but eventually recovered to post a positive year.

2018: Worst year for market to that point since 2008

2016: Worst start to year in history but rebounded with a gain

2015: Markets lost all their gains for the year in August (-11%) and finished the year generally flat.

2010: “Flash Crash:” Dow loses 9% in one day, hits 7 month low but rebounded with a gain for the year.

2008: Financial Crisis: Dow loses 34% for the year

We have recovered from each of these situations and, with the expanding use of technology and algorithms driving the markets, these big rallies and sell-offs are becoming much more normal.

What is driving the markets right now?

The Federal Reserve has been raising interest rates for the past two years to slow down our economy and reduce inflation. Now that the economy is showing signs of slowing, there is fear of recession.

The “big seven” tech stocks that have been driving the markets all year have pulled back after huge gains. This has created a normal rotation out of tech stocks; however, we continue to believe technology stocks will continue to power the markets and our economy for years to come.

The uncertainty of the election is challenging for the markets as it is for all election cycles.

The situation in the middle east appears to be on the brink of escalation. The political and economic ramifications are weighing heavily on the markets.

As always, please do not hesitate to reach out to discuss the markets and your portfolios.

Fed Holds Steady, Hints at Potential Cuts: Key Takeaways from the July Meeting

Wed, 31 Jul 2024 21:16:00 GMT

The Federal Reserve concluded its two-day policy meeting today, Wednesday, July 31st, with a decision that largely aligned with market expectations. While the central bank opted to maintain its benchmark interest rate in the target range of 5.25% to 5.50%, the accompanying statement and subsequent press conference by Fed Chair Jerome Powell offered crucial insights into the committee's evolving stance on monetary policy.

Key Takeaways from the Fed Meeting

Interest Rates Unchanged: The Federal Open Market Committee (FOMC) decided to keep the federal funds rate steady for the eighth consecutive meeting. This decision reflects the Fed's cautious approach to navigating the delicate balance between taming inflation and supporting economic growth.
Progress on Inflation: The Fed acknowledged that "some further progress" has been made in reducing inflation, a positive development that has been underpinned by easing price pressures in several key areas. However, the central bank emphasized its commitment to achieving a sustainable return of inflation to its 2% target.
Economic Resilience: The FOMC assessment highlighted the continued expansion of economic activity, supported by a robust labor market characterized by strong job gains and low unemployment. This resilience underscores the complexity of the Fed's challenge as it seeks to cool inflationary pressures without inducing a recession.
Balanced Risks: The Fed's statement indicated that the risks to achieving its dual mandate of maximum employment and price stability have moved into "better balance." This suggests that while inflation concerns remain, the committee is increasingly mindful of the potential downside risks to the economy.
Open Door to Cuts: While no rate cuts were implemented, the Fed's language signaled a potential shift in its policy trajectory. The statement noted that "it will not be appropriate to reduce the federal funds target range until inflation moves sustainably toward 2%." This implies that rate cuts could be on the table if inflation continues to moderate significantly.
Powell's Tone: Fed Chair Jerome Powell's press conference provided additional context for the committee's decision. His remarks suggested a growing openness to the possibility of rate cuts later this year, but he also emphasized the data-dependent nature of policymaking. Powell stressed the importance of continued progress on inflation and the need to avoid prematurely loosening monetary conditions.

Implications for the Economy and Markets

The Fed's decision to maintain interest rates while signaling a potential shift in policy has generated a mixed reaction in financial markets. On one hand, the acknowledgment of progress on inflation and the balanced risk assessment have provided some relief to investors concerned about an overly aggressive tightening cycle. On the other hand, the absence of an immediate rate cut has dampened expectations for a rapid economic rebound.

Going forward, the path of interest rates will largely depend on the evolving inflation picture. If price pressures continue to decline steadily and without triggering a significant economic slowdown, the Fed may be inclined to cut rates later this year. However, if inflation proves to be more persistent, the central bank could be forced to maintain a restrictive stance for an extended period.

The Fed's July meeting marked a significant moment in the central bank's policy journey. While the decision to hold rates steady reflects a cautious approach, the accompanying statements and Powell's comments suggest a growing willingness to consider easing monetary policy if conditions warrant. Investors and businesses will need to closely monitor economic data and Fed communications for clues about the likely timing and magnitude of any potential rate cuts.

Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

Fed's Latest Move: Key Insights from Today's Rate Decision

Wed, 12 Jun 2024 22:24:00 GMT

Today, the Federal Reserve announced that it will keep the federal funds rate unchanged at 5.25% to 5.50%, maintaining its current stance amid ongoing inflation concerns. This decision marks the sixth consecutive meeting where rates have been held steady.

Key Takeaways:

Steady Interest Rates : The decision to maintain the current rate was unanimous among FOMC members. This pause allows the Fed to assess the impact of previous rate hikes on the economy and inflation.
Inflation and Economic Activity : Although inflation has eased from its peak, it remains above the Fed's 2% target. The Fed highlighted that economic activity continues to expand, and the labor market remains strong with low unemployment rates.
Future Rate Hikes : Despite the pause, the Fed signaled the possibility of additional rate increases later in the year if inflation does not show sufficient signs of decline. The July meeting is considered a "live" meeting where further rate hikes could be discussed.
Balance Sheet Adjustments : Starting in June, the Fed will slow the reduction of its holdings of U.S. Treasury securities, lowering the monthly redemption cap from $60 billion to $25 billion. This is part of its broader strategy to manage monetary policy without excessively tightening financial conditions.
Economic Projections : The Fed adjusted its economic projections, forecasting a slightly higher GDP growth rate for 2023 and a lower average unemployment rate for the fourth quarter. This indicates a stronger-than-expected economy but also suggests that inflation may decrease more slowly than anticipated.

Implications for the Stock Market and Economy:

Stock Market : The market response is mixed. On one hand, the pause in rate hikes provides some relief to investors, suggesting that the Fed is not overly aggressive in its tightening. On the other hand, the potential for future rate hikes could create uncertainty, potentially leading to volatility in the stock market.
Economy : The decision to keep rates steady reflects a cautious approach by the Fed, balancing the need to control inflation without stifling economic growth. The Fed's actions suggest that while inflation remains a concern, they are mindful of the cumulative impact of previous rate hikes and the lagged effects on economic activity and employment.

Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

Tax-Smart Philanthropy in 2024: Optimizing Your Giving While Minimizing Taxes

Thu, 04 Apr 2024 19:04:00 GMT

As your investment advisors, we understand your desire to support worthy causes while making the most of your financial resources. Fortunately, tax-smart philanthropy allows you to achieve both goals. Let’s explore strategies for maximizing your charitable impact in 2024, considering the latest tax regulations and outlining common giving scenarios.

Understanding Charitable Deduction Limits

The Internal Revenue Service (IRS) sets limitations on the amount of charitable contributions you can deduct from your taxable income. These limits are based on your filing status and the type of donation:

Cash Donations: The maximum deduction for cash contributions is 60% of your Adjusted Gross Income (AGI) in 2024.
Appreciated Non-Cash Assets: Donating appreciated non-cash assets held for more than a year, such as stocks or real estate, allows you to avoid capital gains tax on the appreciation while potentially claiming a charitable deduction for the asset's full fair market value. The deduction limit for non-cash assets is 30% of AGI.

Strategies for Tax-Smart Giving:

Here are several effective strategies to consider:

Donating Appreciated Assets: As mentioned earlier, donating appreciated assets held for more than a year allows you to bypass capital gains taxes while potentially receiving a full deduction. This strategy is particularly beneficial for assets with significant appreciation.
Bunching Donations: If your charitable contributions typically fall below the deduction limit, consider "bunching" them. This involves grouping multiple years' worth of donations into a single tax year. This strategy is best suited for those who itemize deductions and have fluctuating income levels.
Qualified Charitable Distributions (QCDs): Individuals aged 70 ½ or older with traditional IRAs can make tax-free Qualified Charitable Distributions (QCDs) of up to $105,000 in 2024 directly to qualified public charities. This strategy can be particularly helpful in reducing required minimum distributions (RMDs) and lowering taxable income.
Charitable Remainder Trusts (CRTs): A Charitable Remainder Trust (CRT) allows you to receive income from a trust for a set period or for your lifetime, with the remaining assets going to a designated charity. This strategy can generate income while providing a future tax benefit for your beneficiaries.

Common Strategies with Tax Benefits:

The Retiree with Appreciated Stock: John, a retired investor with a significant amount of appreciated stock, wants to donate to his alma mater. Donating the appreciated stock directly allows him to avoid capital gains tax and potentially claim a full charitable deduction for the stock's value.
The High-Earner with Fluctuating Income: A high-earning professional with fluctuating income may donate to various charities throughout the year. In years with lower income, the contributions may not reach the deduction limit. By "bunching" donations every other year, they may maximize her charitable deductions.
The IRA Owner Facing RMDs: A retiree with a traditional IRA facing RMDs, wants to make a significant charitable contribution. He can utilize a QCD to donate directly from his IRA to a qualified charity, reducing his taxable income and satisfying a portion of his RMD.
The Couple Leaving a Legacy: Clients nearing retirement want to ensure a portion of their estate goes to charity. They can establish a CRT, receiving income from the trust during their retirement years. Upon their passing, the remaining assets will be distributed to their chosen charity, reducing their taxable estate.

Maximizing Your Philanthropic Impact

Beyond tax benefits, consider these additional tips for maximizing your impact:

Research Charities: Choose charities whose missions align with your values and ensure they operate efficiently.
Consider Non-Monetary Donations: Donating skills, time, or resources can be just as valuable as financial contributions.
Plan for the Future: Incorporate charitable giving into your long-term financial planning to ensure sustained support for your chosen causes.

Seeking Professional Guidance

As your registered investment advisor, we are dedicated to helping you achieve your financial goals, and that includes supporting the causes you cherish. While the strategies outlined here provide a framework, your philanthropic journey is unique. To ensure you maximize your charitable impact while optimizing your tax benefits, we highly recommend scheduling a personalized consultation. Together, we can tailor a tax-smart giving plan that aligns with your financial situation, philanthropic values, and long-term goals. Let's create a legacy of generosity while ensuring your financial security.

Please feel free to reach out for further discussion or clarification on these matters. Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

Don't Let the Fed FOMC You Up: Investment Strategies for Today

Thu, 21 Mar 2024 22:12:00 GMT

The Federal Reserve concluded its two-day policy meeting yesterday, and as many investors anticipated, they opted to maintain the current federal funds rate target range of 5-1/4 to 5-1/2 percent. Let's dissect this decision and explore its potential impact on the stock market and your personal investments, all while considering the record highs the market reached today.

A Cautious Pause: Why the Fed Held Rates

The Fed's decision reflects a balancing act. While recent economic indicators show a solid pace of growth with low unemployment, inflation remains a concern, albeit easing slightly over the past year. The Fed seeks to achieve maximum employment and stable inflation around 2%. By holding rates steady, they signal their commitment to bringing inflation down without jeopardizing economic momentum.

Potential Impacts on the Stock Market

The Fed's decision can influence the stock market in a few ways:

Interest Rates and Valuations: Higher interest rates generally make stocks less attractive compared to bonds, as bonds offer a guaranteed return. The Fed holding rates suggests they believe current rates aren't hindering economic growth significantly, potentially supporting stock valuations.
Investor Confidence: A predictable and stable monetary policy from the Fed can boost investor confidence. This can lead to increased buying activity in the stock market, potentially pushing prices higher.
Volatility: While the Fed's decision provided some short-term clarity, the path forward remains uncertain. Inflationary pressures and future rate hikes could still trigger market volatility.

Navigating the Market for Your Personal Investments

So, how do we react as an investment advisors? Here are some key points to consider:

Focus on Long-Term Goals: We don’t get caught up in short-term market fluctuations. We align our investment strategy with your long-term financial goals, whether its retirement planning or saving for a down payment.
Maintain Diversification: We diversify investments across different asset classes, such as stocks, and bonds. This helps mitigate risk as different asset classes react differently to market changes.
Rebalance Regularly: We review all portfolios on an ongoing basis and rebalance as needed to maintain our designated asset allocation.
Don't Panic Sell: Market corrections are inevitable. Unless forced by an immediate financial need, resist the urge to sell out of your investments during downturns.

Today's Record Highs: A Cause for Celebration or Caution?

The stock market hitting record highs is certainly a positive sign, reflecting investor optimism about the current economic climate. However, it's crucial to maintain perspective:

Past Performance Doesn't Guarantee Future Results: Just because the market is high now doesn't mean it will continue its upward trajectory indefinitely. Be prepared for potential corrections.
Valuation Concerns: While some sectors are still undervalued, others might be approaching bubble territory. Be mindful of the price-to-earnings ratios of your investments. .

The Takeaway: A Time for Cautious Optimism

The Fed's decision to hold rates and today's record highs paint a picture of a cautiously optimistic market environment. While lower interest rates and continued economic growth can be positive for stocks, we are always mindful of potential risks such as inflation and market volatility. So, we help you stay focused on your long-term goals, and prioritize diversification. By adopting a balanced and informed approach, we work to navigate the current market conditions and position your portfolio for success. Please feel free to reach out for further discussion or clarification on these matters. Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

Unveiling the Invisible: The Impact of Inflation on Stock Market Performance

Wed, 14 Feb 2024 16:56:00 GMT

As we navigate through the complexities of the financial markets, understanding the role of inflation in the stock market's performance is crucial for planning ahead. Inflation, by its nature, affects various facets of the economy, including the stock market. In 2023, we witnessed an inflation rate as measured by the Consumer Price Index (CPI) of 3.4%, which, although down from previous years, remained above the Federal Reserve's (Fed) target of 2%. This indicates a persistent inflationary pressure that has implications for the stock market and investors.

Inflation influences the stock market through its impact on interest rates, consumer purchasing power, and corporate profitability. Higher inflation typically leads to higher interest rates as the Fed aims to control inflation by making borrowing more expensive. This, in turn, can slow economic growth and reduce earnings expectations for companies, leading to lower stock prices. However, the relationship between inflation and stock market performance is not always straightforward.

Historically, equities have acted as a buffer against inflation, offering returns that outpace inflation over time. For instance, the S&P 500 Index has delivered a compound annual growth rate of 10.4% from 1926 through 2022, significantly outpacing the average inflation rate. This is because, in many cases, companies can pass on higher costs to consumers, preserving their profit margins. Yet, this ability varies across sectors and companies, and high inflation can squeeze those with less pricing power, impacting their stock performance.

The sweet spot for stock market earnings growth seems to occur when inflation ranges between 2%-4%, a range that supports healthy economic activity without putting undue pressure on costs and interest rates. As inflation moves beyond this range, the stock market faces headwinds. In periods of high inflation, growth stocks typically underperform compared to value stocks, as future earnings become less valuable when discounted at higher interest rates. Conversely, sectors like utilities or information technology might underperform in high inflation environments due to their negative correlation with inflation rates.

Looking ahead, the trajectory of inflation remains a pivotal concern for market participants. While the core Personal Consumption Expenditure (PCE) index, a measure favored by the Fed, showed a slight improvement by dropping below 3% by the end of 2023, inflation's "stickiness" suggests that the Fed might proceed cautiously with any adjustments to the federal funds rate. The anticipation of future rate cuts, as signaled by the Fed's policy stance, could influence stock market dynamics, potentially sparking optimism among investors.

In light of these factors, investors should remain vigilant and consider diversification to mitigate inflation-related risks. A balanced portfolio that includes assets with different inflation sensitivities can help manage the impact of inflation on investment returns. Equities, particularly in sectors with strong pricing power or those historically resilient to inflation, can still play a crucial role in protecting purchasing power over the long term.

As we move through 2024, the interplay between inflation, interest rates, and stock market performance will continue to be a key theme for investors. Staying informed about inflation trends and understanding their potential impacts on different sectors and asset classes will be essential for navigating the year ahead and positioning portfolios to capitalize on opportunities while managing risks.

Decoding the Fed's Latest Moves: Insights from Yesterday's Pivotal Meeting

Thu, 01 Feb 2024 16:20:00 GMT

In the Federal Reserve's first policy meeting of 2024 held yesterday, the key decision was to keep the federal funds rate unchanged, maintaining it within the range of 5.25% to 5.5%. This move marks the fourth consecutive time the central bank has opted against a rate hike since July 2023. This decision reflects the Fed's response to the current economic situation, where there's been some progress in managing inflation, although it still hovers above the Fed's target of 2%.

The U.S. economy has shown resilience despite these rate increases. The employment sector has been particularly strong, with a sub 4% unemployment rate and job openings outnumbering unemployed workers. However, the housing sector, sensitive to interest rate fluctuations, has faced challenges, with existing home sales reaching their lowest annual tally since 1995.

In 2024, the U.S. economy has demonstrated resilience, primarily buoyed by robust consumer spending. This resilience is particularly notable considering the aggressive interest rate hikes by the Federal Reserve. The last quarter of 2023 saw the economy grow at a rate of 3.3%, supported by strong consumer spending, which accounts for more than two-thirds of U.S. economic activity. This growth was facilitated by rising wages, higher interest and dividend income, and subsiding inflation, allowing consumers to spend more on dining out, hotels, healthcare, recreational goods, and vehicles.

However, it's important to note that the National Retail Federation cautions that the growth in consumer spending seen in 2023 might not be sustainable in 2024. The labor market is expected to cool, which could impact consumer expectations and spending decisions. Despite this, the overall economic fundamentals remain solid, suggesting that the U.S. economy is likely to avoid a recession in 2024. The key to maintaining this positive trajectory will be how the Federal Reserve manages interest rates moving forward.

Looking ahead, the Federal Open Market Committee (FOMC) signals that rate cuts could be on the horizon, potentially starting as soon as May 2024. These anticipated rate cuts are in line with the Fed's observation that the economy is on a path of sustainable growth and that inflation is gradually moderating. The market anticipates that these cuts could surpass the Fed's projected 75 basis points of easing by the end of the year, possibly adding an additional 50 basis points.

Mortgage rates, closely tied to the Fed's policy actions, have stabilized in the early part of 2024. For significant drops in mortgage rates, more evidence of slowing inflation and sustainable economic growth is needed. It's expected that mortgage rates will start to ease, aligning with the broader market anticipation of a more normalized monetary policy as the year progresses.

It's worth noting that while the Fed's rate decisions are crucial, mortgage rates are influenced by multiple factors and not set directly by the Fed. The Fed's rate decisions often correlate with movements in mortgage rates, though other economic and political factors also play a role.

These developments suggest a period of relative stability in the near term, with the possibility of more favorable borrowing conditions as the year unfolds. However, it's important to remain vigilant and responsive to new economic data and the Fed's future policy decisions.

Overall, the Fed's current stance indicates a careful approach, balancing the need for economic growth with the goal of maintaining inflation control. The next Federal Open Market Committee meeting, scheduled for March 19-20, 2024, will provide further insights into the Fed's economic outlook and policy adjustments. We will continue to monitor these developments closely and provide guidance on how they may impact your investment strategy. As always, our team is here to support your financial goals and answer any questions you may have.

Don't Pop the Champagne Just Yet: Why the Stock Market Rally Might Fizz Out in 2024

Wed, 27 Dec 2023 18:51:00 GMT

The rise of the stock market in 2023, fueled by hopes of a soft economic landing and tamed inflation, has investors dreaming of champagne toasts in 2024. But amidst the celebrations, a drumbeat of caution is brewing: can a sunny economic outlook guarantee a cloudless sky for Wall Street? While a continued rally isn't out of the question, several looming factors suggest the party might end sooner than some expect. Affinity Capital has been overly cautious with your hard-earned money in 2023 as the issues we have outlined below have been brewing all year. The majority of gains in 2023 were, for the most part, led by thin leadership in some of the largest stocks. This is not a sign of a healthy market.

1. The Fed's Tap Dance: From Hawk to Dove and Back Again?

The Federal Reserve's pivot away from its aggressive rate hikes was the main oxygen for the 2023 rally. But the dance isn't over yet. While “slowing inflation” might prompt lower rates in 2024, the central bank isn't known for its tango prowess. If inflation proves more stubborn than anticipated, another hawkish turn could send shockwaves through the market, especially in interest-rate sensitive sectors like tech and growth. Keep in mind, a slowing rate of inflation does not mean prices are falling – it means that inflation is still rising but at a slower rate!

2. Earnings: Will the Music Stop?

Corporate earnings, the bedrock of stock prices, have largely held up despite economic headwinds. However, the question is whether they can keep the beat in a slower growth environment. Rising costs and potential wage pressures could squeeze profit margins, putting downward pressure on stock prices even if the economy keeps its head above water. A note about corporate earnings and Wall Street: When

a company “beats” or “misses” their quarterly earnings – It is based on the averages of dozens of analyst forecasts which are constantly updated throughout the quarter and year. The reaction of buyers and sellers to the headline earnings reports may not always indicate the whole story. On average 90% of the 500 stocks in the S&P 500 have BUY ratings. Keep in mind, Wall Street firms are marketing their products and services to these same companies they are analyzing.

3. Geopolitical Jitters: A Wild Card on the Table

The world stage remains a tinderbox, with ongoing conflicts in Ukraine and the Mid-East, tensions simmering on other fronts. A major escalation or economic shockwave emanating from geopolitics could trigger risk aversion and send investors scurrying for safe havens, leaving equities in the dust. This is especially true with Iran and their proxies in Lebanon, Iraq and Yemen.

4. The Debt Dance: A Burden We Can't Ignore

Soaring national debt, both in the US and globally, casts a long shadow over economic stability. With interest rates on the rise, servicing this debt becomes more expensive, potentially diverting resources away from productive investments and impacting corporate and consumer finances. A debt crisis, though unlikely in the immediate future, could be a major spoiler for any sustained market rally. Federal spending jumped from $4.45 trillion in 2019 to $6.21 trillion in 2023, according to the Congressional Budget Office. That is a 40 percent increase in four years. The proposed 2024 national budget is 9.5 percent higher than 2023 with an estimated deficit of $1.84 trillion. We must return to pre-COVID budgets based on actual revenue and curtail spending. The proposed budgets through 2033 show well over a $1.50 trillion deficit each year! The bond markets have been flashing a warning signal for over a year with annualized interest rate returns for U.S. Treasury Bills of less than one month delivering more than those of 30-year Bonds.

5. Valuations: Back to Reality Check?

While not as lofty as during the pandemic frenzy, current valuations still leave some room for concern. A 25% gain in 2023 has baked in optimism about the future, and any missteps on the economic or corporate earnings front could lead to a sharp correction, bringing valuations closer to long-term averages.

So, what does this all mean?

Investing is not a linear journey, and 2024 promises to be anything but predictable. While the recent economic improvements are cause for cautious optimism, investors should keep their champagne on ice for now. A soft landing for the economy doesn't automatically translate to a smooth ride for the stock market. Vigilant monitoring of key factors like the Fed's stance, corporate earnings, and geopolitical risks will be crucial for navigating the year ahead. Remember, staying grounded in fundamentals and embracing a healthy dose of skepticism will serve you well, whether the market celebrates or sulks in 2024.

In conclusion, the stock market rally of 2023 might not be the harbinger of a prolonged bull run. Several potential roadblocks lie ahead, each with the power to disrupt the party. While cautiously optimistic for the economy, investors should approach 2024 with a clear head and a diversified portfolio, ready to weather whatever the market throws their way.

We remain committed to helping you achieve your investment objectives. Please do not hesitate to reach out with any questions or concerns. 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!

Positioning to Protect Your Assets

Mon, 30 Oct 2023 22:02:00 GMT

Stocks are weak and the S&P 500 has entered a correction after sliding 10% from its July peak.

A nice rally in the second quarter in the so-called "Magnificent Seven" stocks – Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta Platforms (Facebook) – have driven nearly all of the stock market gains this year. Since their July peak they have lost more than $1.3 trillion in market value.

Without these seven stocks, there is virtually no return on other big stocks as a group and the small, medium and international stock sectors are all quite weak. If a move in the stock market shows broad movement across a wide swath of stocks, then it’s thought to be strong. Trends supported by just a handful of influential stocks tend to be weak. In a popular analogy for the latter scenario, technical analysts might say that the generals, being the seven largest technology stocks, are charging while the soldiers, most other stocks, are in retreat.

Affinity Capital sees an overall weak market ahead though not without some bear-market rallies. In our efforts to protect your hard-earned assets, we have been extremely conservative this year. We have positioned out portfolios for market weakness. On Thursday, the Dow was down 251 points, while the S&P 500 lost 1.2%. While another steep fall for Big Tech sent the Nasdaq composite to a market-leading loss of minus 1.8%. Our average loss for Affinity Capital Portfolios was less than one-tenth of a percent. Our lower balance portfolios contain more equities due to their size and were down just over one-half of a percent.

Your portfolios do have funds that hold the large tech stocks mentioned above, but again we have been skeptical of the markets all year and hold a large position of income-producing securities that help protect against rising interest rates. As you have seen from recent transaction confirmations, we have purchased “risk-free” U.S. Treasury Bills that mature in ten days for an annualized yield of over 5.32%.

The fact that we can obtain over 5.32% for ten days versus a ten-year Treasury yielding less than 5.00% is telling us that the bond market is quite concerned about our economy. We have learned that ignoring the voice of the bond market as well as money supply levels and other economic signals is never a good idea.

There is conflicting data regarding US inflation with some showing that inflation cooling at a faster rate than predicted, and additional data pointing the other way. The Federal Reserve’s preferred measure of underlying inflation accelerated to a four-month high in September as consumer spending picked up. Still, the Fed is expected to keep its finger on the pause button when it meets to discuss interest rates this week.

The purpose of higher interest rates is to slow consumers from consuming. Through most of eleven rate hikes, consumers have shown very little appetite to slow down – until now. Demand for big-ticket items is softening. Shoppers are increasingly shunning boats, refrigerators and other expensive goods, and this softening trend will likely accelerate through most goods and services.

As 70% of our GDP (Gross Domestic Product) is driven by the consumer, this slowdown in spending provides a higher likelihood of a recession in 2024. As previously mentioned, conflicting data regarding both inflation and recession is not healthy.

As the price of oil continues to rise, the instability of Washington politics continues and the events in Ukraine/Russia and Israel/Gaza escalate, we will continue to monitor data and events that affect your portfolios and act in your best interest. Remember that we are relatively long-term investors, and we understand that markets cycle throughout history so will seek opportunities as they arise.

We appreciate the opportunity to assist you with your financial needs. As always, please feel free to call anytime.

Market Update for October 19, 2023

Thu, 19 Oct 2023 21:21:00 GMT

We hope this message finds you well. We would like to provide you with an important update on the financial markets in light of Federal Reserve Chairman Jerome Powell's recent comments.

I. Inflation Concerns: A Reality Check

Chairman Powell's address today carried a significant message, one that we as investors have been keenly observing: the Federal Reserve's acknowledgment that inflation is not as "transitory" as initially perceived. This recognition that inflationary pressures are proving more persistent than expected has crucial implications for your investments.

In this context, it is essential to consider the potential consequences for your portfolio. Persistent inflation can erode the purchasing power of your assets. To hedge against this, it may be prudent to explore investments that traditionally perform well during inflationary periods, such as commodities, real estate, and Treasury Inflation-Protected Securities (TIPS). Additionally, companies with strong pricing power and the ability to pass on cost increases to consumers may present attractive opportunities in this environment.

II. Tapering and Tightening Monetary Policy

Another key aspect of Chairman Powell's speech was the indication that the Fed is contemplating an accelerated tapering of its bond purchases. This process is a precursor to potential interest rate hikes, indicating a more hawkish stance by the central bank.

This potential shift in monetary policy has significant implications for your investments. Historically, markets have been sensitive to changes in monetary policy. Equity markets, in particular, have enjoyed a prolonged period of low interest rates and ample liquidity, which has supported valuations. A move toward tighter monetary policy could lead to a repricing of risk assets, resulting in market volatility and potentially market corrections.

As your advisors, we will closely monitor these developments and make the necessary adjustments to your investment strategy. This may involve rebalancing your portfolio to mitigate potential risks while seeking out opportunities.

III. Data-Driven Approach and Labor Market Focus

Chairman Powell also emphasized the importance of adopting a flexible and data-driven approach to monetary policy. The Fed's commitment to reacting to evolving economic conditions offers some assurance to investors. It suggests that the central bank will be cautious in its tightening measures, aiming to maintain a stable economic environment.

The focus on the labor market is also noteworthy. While substantial progress has been made, Chairman Powell acknowledged that there are still gaps to be addressed. This focus on labor market conditions indicates the Fed's intent to remain dovish, even as it moves toward tightening policy. This approach may provide some reassurance to investors concerned about abrupt policy changes.

IV. Implications for Currency Markets

For our clients with international exposure, it is important to note the potential impact on currency markets. The prospect of a more hawkish Fed, with the potential for an early tapering of asset purchases and interest rate hikes, could lead to a stronger U.S. dollar. This may influence trade balances, commodity prices, and the competitiveness of multinational corporations. We will closely monitor the dollar's direction and assess the impact on your foreign investments.

V. Fixed-Income and Housing Markets

For clients with fixed-income investments and an interest in the housing market, it's crucial to consider how these sectors may be affected. As the Fed reduces its purchases of long-dated Treasuries and mortgage-backed securities, yields on these instruments may rise, impacting borrowing costs for businesses and consumers. This could affect sectors such as housing and interest-rate-sensitive industries. We will continue to evaluate your bond holdings and assess any adjustments required.

VI. Maintaining a Diversified Portfolio

In conclusion, Chairman Powell's comments have illuminated a shifting economic landscape and the Fed's determination to address rising inflation. The market implications are multifaceted and have a direct bearing on your investments. As your dedicated advisors, we are committed to proactively managing your portfolio during these dynamic times.

To navigate these uncertain waters, we are maintaining a diversified portfolio tailored to your long-term financial goals. This approach can help mitigate risks, capture potential opportunities, and ensure your investments are aligned with your objectives.

We are here to assist you every step of the way. Please do not hesitate to reach out to us with any questions or concerns you may have regarding your investments or the latest market developments. We will continue to monitor the situation closely and provide you with timely updates and guidance.

Thank you for entrusting us with your financial well-being. We remain committed to helping you achieve your investment objectives. Please do not hesitate to reach out with any questions or concerns.

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!

The Fed Not Raising Interest Rates: What It Means for Investors

Wed, 20 Sep 2023 19:23:00 GMT

The Federal Reserve (Fed) is the central bank of the United States. It is responsible for setting monetary policy, which includes controlling interest rates. Interest rates are the price of money, and they affect the cost of borrowing and lending.

When the Fed raises interest rates, it makes borrowing more expensive and lending more attractive. This can slow down economic growth and help to bring down inflation. When the Fed lowers interest rates, it makes borrowing cheaper and lending less attractive. This can stimulate economic growth and help to boost inflation.

The Fed has been raising interest rates aggressively in 2023 in an effort to combat high inflation. However, at its most recent meeting in September 2023, the Fed decided to leave interest rates unchanged. This decision came as a surprise to many investors, who had been expecting another rate hike.

What does the Fed's decision mean for investors?

Borrowing costs will remain low. This is good for businesses and consumers, who can now borrow money more cheaply to invest or make purchases.
Investment returns will be lower. This is because interest rates are used to calculate the returns on many investments, such as bonds and CDs.
There is a risk of a recession. If the economy does enter a recession, it could lead to lower stock prices and other asset losses.

What are ways that Affinity Capital addresses this situation?

Invest in stocks that are likely to benefit from low interest rates. This could include stocks in sectors such as technology, healthcare, and consumer staples.
Bonds can provide stability to a portfolio and can also generate income. However, investors should be aware that bond yields are likely to remain low for the time being.
Portfolio diversification. We invest in a variety of sectors.

Remember, investing is a long-term game. We don’t make investment decisions based on short-term fluctuations in interest rates or the stock market. Instead, we focus on investing in companies with strong fundamentals and that are well positioned to grow over the long term.

We at Affinity Capital are here for you to discuss investing moving forward in a changing and challenging environment. Call or email to schedule an appointment.

Many of our new clients come from client referrals and we have provided service to these referrals in the form of portfolio advice, retirement planning and most recently assisting elderly parents in investing to meet their care needs. All referrals receive great care and confidentiality and we appreciate the trust you place in Affinity Capital when you refer your friend, colleagues or family.

Market Report for August 28, 2023

Mon, 28 Aug 2023 16:53:00 GMT

Jerome Powell, Chair of the Federal Reserve, gave a speech at the Jackson Hole Economic Policy Symposium on Friday, August 25, 2023. In his speech, Powell reiterated the Fed's commitment to bringing inflation down to its 2% target. He also acknowledged that the Fed's efforts to tighten monetary policy could lead to slower economic growth and higher unemployment.

Some of the key takeaways from Powell's speech are:

The Fed is "strongly committed" to bringing inflation down to its 2% target. Powell said that the Fed will continue to raise interest rates until inflation is "moving sustainably" down toward 2%.
The Fed is aware that its efforts to tighten monetary policy could lead to slower economic growth and higher unemployment. Powell said that the Fed is "mindful of the risks" of a recession, but he reiterated that the Fed's top priority is to bring inflation down.
The Fed is "prepared to use its tools" to bring inflation down, even if it means causing some economic pain. Powell said that the Fed is "not going to hesitate" to take action to bring inflation under control.

Powell's speech was widely interpreted as a signal that the Fed is prepared to continue raising interest rates aggressively in order to bring inflation down. This is likely to lead to higher borrowing costs for businesses and consumers, which could slow economic growth and lead to higher unemployment. However, Powell made it clear that the Fed is willing to take these risks in order to achieve its inflation target.

The markets reacted positively to Powell's speech, with stocks and bond yields rising. This suggests that investors believe that the Fed is taking the right steps to bring inflation under control. However, it remains to be seen how the economy will respond to the Fed's tightening cycle.

Some of the key questions that remain unanswered after Powell's speech are:

How high will the Fed raise interest rates? Powell did not provide any specific guidance on how high the Fed will raise interest rates. However, he did say that the Fed is "prepared to use its tools" to bring inflation down, even if it means causing some economic pain. This suggests that the Fed is willing to raise interest rates to a level that will significantly slow economic growth.
How will the economy respond to the Fed's tightening cycle? It is still too early to say how the economy will respond to the Fed's tightening cycle. However, there is a risk that the Fed's actions could lead to a recession.
What will the Fed do if inflation does not come down? If inflation does not come down, the Fed will have to decide whether to continue raising interest rates or to adopt other measures, such as quantitative easing.

Powell's speech was a significant event that will have a major impact on the economy. It remains to be seen how the economy will respond to the Fed's tightening cycle, but Powell's comments suggest that the Fed is prepared to take whatever steps are necessary to bring inflation down.

We continue to monitor the statements relating to policy and how it may affect your investments. As always, please contact us with any questions you may have.

Second Quarter 2023 Market Commentary

Thu, 20 Jul 2023 19:27:00 GMT

“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 Report for June 2, 2023

Fri, 02 Jun 2023 15:27:00 GMT

The Senate yesterday approved legislation that will suspend the debt ceiling until 2025, sending the measure to President Joe Biden for his signature.

In doing so, it beat a June 5th deadline to avoid a catastrophic and unprecedented government default. The 63-36 Senate vote came one day after an overwhelming 314-117 vote in the House of Representatives on the bill.

Key elements of the debt ceiling deal

The bill suspends the debt ceiling until January 1, 2025. At that point, the Treasury Department will be able to use accounting maneuvers to get around the debt ceiling (referred to as "extraordinary measures") for several months to ensure the country does not default. That means that the debt ceiling won't need to be raised until mid-2025, well after the 2024 presidential election and with a new Congress in place.

The legislation reduces discretionary spending for the next two years, but those cuts do not affect defense spending—which will see an increase in the coming year—nor will there be any cuts to Social Security, Medicare, or veterans' health care programs. The bill also requires Congress to pass the 12 appropriations bills that fund every federal agency and program by the end of 2023 or risk an automatic across-the-board one percent cut in all funding.

The agreement also repurposes about $28 billion in unspent COVID-19 funds, as well as about $20 billion of the special funding for the Internal Revenue Service that was approved last year. The legislation increases work requirements for some food stamp recipients; reforms the permitting process for energy projects; and ends the freeze on student loan repayments that was put in place during the pandemic.

As with most compromises in Washington, the agreement left both parties disappointed. But the strong bipartisan votes in both the House and Senate underscored the importance of avoiding a default, even if many lawmakers had reservations about the contents of the deal.

As the Senate passed the debt ceiling bill, which we strongly believed it would, we are now digesting another astonishing monthly jobs report. The US economy added 339,000 jobs in May, exceeding forecasts of 190,000, according to the monthly jobs report from the Department of Labor. The unemployment rate rose from 3.4% to 3.7%. The jobs report, while a key data point for the Federal Reserve to monitor the strength of the economy, Fed officials are also leaning toward a pause in the rate hike campaign that has seen ten straight rate hikes: seven times in 2022 and three so far in 2023 of 25 basis points each. The jobs numbers may not be as much of a factor in their decision in June.

Investors obviously see this as a positive with the DOW surging over 400 points, or 0.8%, this morning on the news of the debt ceiling agreement. We want to see inflation kept under control as the report shows steady growth. With this in mind, we remain cautious yet poised to reallocate as we watch the current events.

As always, please feel free to reach out to us with any questions. We thank you for the confidence you have placed in Affinity Capital to manage your investments and navigate these times together.

Market Report for May 4, 2023 | Affinity Capital

Thu, 04 May 2023 19:15:00 GMT

The Federal Reserve announced their tenth rate hike in the last year for the federal funds rate as they continue their most aggressive rate hike cycle in 40 years. The hike was an increase of 0.25%, bringing the fed funds rate to a range of 5.00% to 5.25% from a bottom of 0.00% to 0.25%.

The federal funds rate is the rate at which commercial banks borrow and lend their excess reserves to each other overnight. While it is an” overnight” rate, it sets the benchmark for all other interest rates from savings accounts and credit cards to 30 year mortgages.

The markets traditionally look to statements from the Fed chairman for some indications of future monetary policy and how it will affect the markets going forward. Given the Fed action, we think there is little catalyst for the markets to move forward in the near future. The Dow Jones Industrial Average saw a swing this afternoon of more than 350 points, closing down 270 points.

Apple Inc. is the largest publicly traded company in the world and will report their earnings today after the market close. It is often said that as Apple goes, so goes the market.

After a dismal year for both stocks and bonds in 2022, sentiment among a large number of analysts has been cautious. We agree and to protect your assets in very uncertain times, we have been conservative this year.

We have often discussed the illusion of traditional market measures such as the S&P 500 as a reflection in a wall of mirrors. It can be a rather deceptive proxy for both the markets and your portfolios. A small number of tech companies are driving an ever-increasing share of the US stock market’s gains, prompting us to have concerns about the sustainability of this recent short-term rally.

The S&P 500 has risen 8 percent so far in 2023, but 80 percent of the increase has been driven by just seven companies. Apple and Microsoft have led the way, contributing around 40 percent of the index’s rise. The trend has been growing for several months and while there is always a fear of missing the market, we have remained steadfast in our viewpoint of continued systemic market weakness.

When we consider an out of sync bond market, falling oil prices, slowing economic activity and a potentially increasing banking crisis, we believe that the underlying weakness in the markets is signaling caution.

The debate, or rather lack of debate, at this point over the federal debt limit will cast an increasing pall over the markets. The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations. Since the modern debt limit was created in 1939, it has been raised almost 100 times. It is a myth that the government defaults on its obligations immediately when the limit is reached, but it is getting close.

The U.S. government has never defaulted on its debt, and we remain certain it will not this time. With that said, Washington politics seems to get scarier every day. We do have a high exposure to U.S. Treasuries which are traditionally considered “risk-free” investments. As we manage through turbulent times, our portfolios have an annualized average of over 5.00% return for investments of less than 30 days maturity. We will continue to evaluate these investments as the timeframe for congressional debt limit negotiations progresses.

As always, please feel free to reach out to us with any questions. We thank you for the confidence you have placed in Affinity Capital to manage your investments and navigate these times together.

Market Report for March 22, 2023

Wed, 22 Mar 2023 21:17:00 GMT

Today, the Federal Reserve lifted rates by a quarter-point, raising the key benchmark at a range of 4.75% to 5%, the highest since 2007, from near zero a year ago. This is the ninth increase in less than a year as they continue to fight a spike in inflation unseen in the past forty years.

Fed officials now expect economic growth to be slightly slower this year, and inflation slightly higher, than they predicted in December. They also forecast the need for additional rate hikes going forward.

The chairman of the Federal Reserve, Jerome Powell, said that the American banking system was “sound and resilient”. This is in reference to the recent failure of three U.S. banks in the last two weeks as well as the fall of Swiss investment banking firm Credit Suisse.

Prior to the bank failures, it was anticipated that a rate hike of one-half percent was predicted and these latest events will lead to tighter lending criteria by the financial industry. This is one purpose of raising interest rates. This event may have accomplished what the higher anticipated rate hike intended.

We have been talking lately about further cash management strategies, both for income and for capital preservation. U.S. Treasury Bills maturing in 30 days or less are paying above 3.90% APR or annual percentage rate, while 30-year Treasuries are yielding 3.60%.

This is a flashing recession signal when short-term rates are higher than long-term. We are taking advantage of these higher short-term rate for our client portfolios.

We continue to be cautious about the stock market and our portfolios reflect this outlook. Economic indicators as well as stock and bond market data lack clarity going forward and we will be monitoring and evaluating the Federal Reserve statements following today’s rate hike. At the end of this first quarter, earnings will be announced.. These events will be closely watched and will give us insight into the strength, or weakness, of economic activity later in 2023.

At the market close today, the Dow Jones Industrial Average was down over 500 points. We continue to be in a bear market despite some periodic market rallies, and we continue to look for long-term opportunities.

As always, please feel free to reach out to us with any questions. We thank you for the confidence you have placed in Affinity Capital to manage your investments and navigate these time together.

Flash Comment for March 13, 2023

Mon, 13 Mar 2023 16:41:00 GMT

In light of major news events last week, we wanted to provide a brief update on the markets. Last week has seen a confluence of events that is affecting both the stock and bond markets. They include:

Comments from Fed Chair Jerome Powell regarding a more aggressive tone in monetary policy to fight inflation.
- We do note that additional news creates a scenario to argue against this aggressive tone.
The February labor report showed stronger-than-expected job gains. This is a key metric that the Fed considers in their decisions to raise interest rates.
A lower-than-anticipated increase in wages, also, a key metric for the Feds.
Treasury yields are tumbling in the wake of the labor report and worries surrounding the banking sector.
A continuing inversion of short-term and long-term interest rate yields.
The U.S. dollar is sharply lower, while crude oil and gold prices are trading to the upside.
The failure of Silicon Valley Bank - SVB. We note that this bank has a special niche serving venture capital firms and tech startups. Although specialized, it is concerning to the overall banking industry.
Additionally, we are quite concerned with the multi-trillion-dollar federal budget being discussed and its potential impact on inflation and the national debt.

We also want to offer some information to comfort you as you see news about the regional bank failure in Silicon Valley, California referenced above. Our main custodian is Charles Schwab, one of the largest custodians in the world, holding over $7 trillion dollars in customer assets.

We have included an excerpt concerning The Securities Investor Protection Corporation (SIPC). The SIPC (similar to FDIC protection for banks) protects customers of brokerage firms. https://www.sipc.org/for-investors/introduction

“The Securities Investor Protection Corporation (SIPC) protects customers if their brokerage firm fails. Brokerage firm failures are rare. If it happens, SIPC protects the securities and cash in your brokerage account up to $500,000. The $500,000 protection includes up to $250,000 protection for cash in your account to buy securities.”

https://www.schwab.com/legal/sipc-account-protection

Regarding SIPC, FDIC and additional account coverage.

To begin, we have been urging caution in our Affinity Capital Three Minute Market Digest’s since early last year. Our Affinity Capital Portfolio Models contain high levels of short-term U.S. treasury bonds and cash – as much as fifty percent of our total portfolios. We added gold and silver earlier this year and some of the weakness in our portfolios are in positions where we have double-digit gains. We did sell most large growth, mid-size, small-size, and international investments early last year.

We want to stress that your portfolios are not highly correlated to the major benchmarks seen on the news, mainly, the Dow Jones Industrial Average, The S&P 500, and the Nasdaq. While we still see weakness as we manage through 2023, we are focusing on income producing securities as well as long-term opportunities amid this weakness.

We certainly understand that our clients lead busy lives. We will continue reaching out to clients to schedule first quarter meetings but if we have not yet visited, we ask you to reach out to us to schedule.

Of course, if you have immediate concerns or questions, call us anytime.

We seek to serve you at a high level and be good stewards of your hard-earned assets.

Thank you for the opportunity to be of service to you and your family!

Three Minute Digest for February 16, 2023

Thu, 16 Feb 2023 16:43:00 GMT

“ Thunder is good, thunder is impressive; but it is lightning that does the work” Mark Twain

Global stock and bond indices started 2023 with a lot of thunder and a bit of lightning, bouncing back after a dismal December. This has been aided by institutional money managers buying stocks to cover “short” positions in the markets as well as expectations for the Federal Reserve to slow the pace of interest rate hikes in 2023. A short position is a transaction to profit from a decline in prices by selling a stock first and then buying it back at a lower price in the future. This “short-covering” can produce a strong short-term rally that often follows a weak period in the markets such as the weak December followed by the strong January we just experienced. This is a normal part of a bear market rally and while rallies are welcome, we remain cautious going forward.

Inflation concerns will continue to dominate the financial markets in 2023. Recent reports show that inflation remains at elevated and persistent at levels not seen in 40 years. The current US Inflation Rate is at 6.41%, compared to 6.45% last month and 7.48% last year. This is significantly above than the long-term average of 3.28%.

The daily headlines of corporate layoffs will continue and are a normal part of a weak economic environment which is indicative of an existing or pending recession. The difficult personal impact of losing a job is significant but within the economics of running a business, a recession forces businesses to streamline and become more efficient, which in turn benefits the overall economy going forward.

We have just highlighted inflation and recession in the same breath. In typical economic cycles you either get one or the other. When you pair them together, it is referred to as “stagflation”. This is a period of stagnant or recessionary economic activity which typically causes demand for products to fall and thus should lower prices but at the same time we have inflated prices for goods and services. The 1970’s was the last time the term “stagflation” was needed in our vocabulary.

Stocks Versus Bonds in Your Portfolios

2022 posed many challenges across stock and bond markets, as the usual diversification benefits between stocks and bonds, as typically weakness in stocks is offset by strength in bonds and vice-versa, essentially broke down and a traditional 60% stock and 40% bond portfolio fell 16% during the year as each component posted a negative return for the first time since 1974.

Just a few of the factors that contributed to a historically weak year for both the stock and bond markets and the historic sell-off included record inflation and central banks responding with the fastest ever rise in interest rates, geopolitical unrest, primarily the Russian invasion of Ukraine, lockdowns in China, supply chain disruptions and a possible government default.

While the markets have shown some surprising resiliency so far in 2023, a large number of Wall Street analysts see more pain ahead for the markets. At Affinity Capital, we also see caution lights ahead, such as a slowing housing market, persistent inflation, and weak corporate earnings. While we find some confirmation of our concerns by market analysts, we also remain aware of the spotty history of many experts on Wall Street.

The markets are forward-looking creatures. We are currently in a market environment that wants to advance on the hope for better economic conditions in the future but is constrained by a lack of clarity on too many issues for us to break free from this bear market.

The thunder rolls, but a good old fashioned lightning storm of consistent economic good news and a more sustained market rally needs to be present in our forecast.

Year End Market Commentary

Mon, 23 Jan 2023 20:13:00 GMT

After three consecutive quarterly declines, U.S. stocks moved higher in the fourth quarter, but underperformed their international peers. Investors favored value – and cyclical – oriented segments of the market, which outperformed their growth peers by a considerable margin.
U.S. bond yields, as represented by the U.S. Aggregate bond Index, appear to have peaked as we approach the end of the Fed’s rate hike cycle, and the markets begin to price in potential cuts down the road.
Bond returns were positive in Q4, with lower rated, higher risk bonds posting the highest returns for the quarter.
International bonds posted positive returns, mostly due to the drop in the dollar and the accompanying rise in local currencies.
Commodities remained volatile amid a pullback in the U.S. dollar, optimism due to eased China Covid restrictions, and global recession concerns, while stabilization in interest rates fostered a rebound in REITS.

Job cuts and jobless claims paint a divergent picture - although the leading indicator of job cuts has picked up noticeably year over year, jobless claims have returned to near 2022 lows, from 650,000 to just over 200,000.

As for inflation, the long-term view suggests that previous surges in inflation were associated with unique events, some of which lasted for years. More active monetary policies have been in place since the early 1980’s, although it is uncertain whether the ultra-aggressive Fed actions can contain inflation in the near term. In the past, higher inflation correlated with weaker markets and economic gains. Goods oriented inflation continues to soften while services prices remain stubbornly sticky. Trends and leading growth indicators, such a money supply growth, are still favorable for a continued easing in price growth; however, the pace of the decline remains unclear.

With most markets hitting bear market territory this year, it is notable that bull markets have been longer in duration and greater in magnitude than bear markets, resulting in gains over time. This bear market has been driven by multiple compression, making valuations look compelling. Yet expected weakness in earnings may limit upside potential for equities. Continued high inflation may indicate that the market is trading gin an uncomfortably expensive zone.

It is important to remember that just five companies account for nearly 20% of the S&P 500’s market cap. While these companies significantly outperformed the overall market in the last two years, they also experienced a sharper pullback during the recent volatility.

At Affinity Capital, we have adopted a cautious approach in the last year, moving to cash easily to avoid significant market risk, investing in Treasury Inflation Protected Securities, and specifically investing in value driven, dividend bearing securities. The impact of dividends as an income generating security on total return is substantial. A hypothetical portfolio with dividend paying stocks invested over the last forty years with dividends reinvested grew sixty three percent over a price appreciation only portfolio.

We have also utilized tax efficient investing, using tax loss harvesting to our advantage with potential savings in taxes over the long run. Sector diversification has been important as variation in sector returns has offered opportunities for tactical tilts.

All of the above commentary about the challenging market this past year is important, and we focus on it every day. It really is one part of your financial picture.

When we sit at the table as part of a team with our client’s professional team, such as tax providers and estate attorneys, we are looking to the future. How will clients plan for their future and that of their families, such as aging parents? How will they sustain assets for a comfortable future? How will they provide for the multi-generational transfer of wealth?

When we adopted the tag line ‘Wealth Management for Life’ it was motivated by the belief that all of these parts are interconnected, and we genuinely enjoy assisting in the strategic vision of your future.

We appreciate the opportunity to collaborate with you and your family and look forward to working with you in the new year and beyond.

Happy New Year!

Please read our more in depth comment ‘Putting a Bow on 2022’ here .

Putting a Bow on 2022

Mon, 23 Jan 2023 19:49:00 GMT

Although 2022 was a year marked by memorable events, but any investors might wish they could forget it, considering one prominent gauge of U.S. stock market performance — the S&P 500 ^® Index — ended the year in bear market territory.

Although each taxable account and each client are different, we strive for tax-efficiency annually. As we moved forward from year-end 2021, our forecasted market environment saw the need to significantly reposition our portfolios.

In the following Figure 1 , we offer a look back across 2022, plotting the cumulative daily return for the S&P 500 along with a host of notable headlines.

Over these three years, there was news and changing conditions that contributed to market volatility. The pandemic, the ensuing economic shutdown, rising inflation and the Federal Reserve’s actions to fight it are just examples.

Affinity Capital exited positions early in 2020 as the scale of the COVID pandemic affected the markets. We slowly re-entered during the Dow Jones Industrial Average thousand-point drops.

In Figure 3 , we put the period in greater context by presenting a selection of notable statistics showing where each stood at the end of 2019 and each year since.

The full-period highs and lows helped to unmask the changes that were anything but linear. Between these three years, we saw times of higher volatility, higher stock valuations and lower interest rates than we saw at the end of 2022.

In the first quarter of 2022, we exited traditional bonds whose value is inversely affected by rising interest rates. We also exited small and mid-size company funds as well as international position and have moved to higher income producing securities to take advantage of climbing interest rates.

A Few Thoughts for 2023

Looking ahead, we will face many of the same risks and uncertainties of 2022 as it remains to be seen how far the Federal Reserve will go in its campaign to curb inflation, how higher interest rates will affect consumer spending and company earnings, how the war in Ukraine will play out, or what will result from China’s shift away from its zero-COVID policy.

History does offer perspective, though, for investing in tough times. We can expect more volatility in 2023, but the market has already priced in lower expectations, and valuation ratios are more attractive.

If we consider previous periods when economic uncertainty was high, the markets have historically rallied well before those uncertainties subsided — once light appeared at the end of the tunnel and signs of improving conditions were apparent. There is a possibility of continued weakness in the technology heavy Nasdaq 100 stocks. This may be another shoe to drop in the minus 10 to 15% range. As we realign our portfolios, we see periods of continued weakness in the short-term which will heighten investor emotions.

Just a year ago markets were at historic highs after a century of world wars, assassinations, oil embargos, terrorist attacks, a mortgage crisis and so much more. The markets are resilient and will continue to build wealth for us.

Three Minute Digest for December 15, 2022

Thu, 15 Dec 2022 18:07:00 GMT

The Inflation / Recession Tightrope and a Word about Cryptocurrency

The Federal Open Markets Commission (FOMC) of the Federal Reserve completed their two-day December meeting yesterday and has raised the Federal Funds Interest Rate by 0.50% to put rates in a range of 4.25-4.50%, up from 0.00-0.25% at the start of March this year.

Interest rates continue to rise as global central banks aggressively tighten to fight inflation, while still attempting to avoid recession. Yesterday, the latest US Inflation Rate posted at 7.11%, compared to 7.75% last month and 6.81% last year. This is higher than the long-term average of 3.27%. The Dow Jones Industrial Average spiked to over seven hundred points to the upside after the announcement and experienced wide swings and briefly turning negative before ending the day with a 103-point gain.

The subsequent FOMC statement will be analyzed carefully for any clues as to whether this succession of aggressive rate hikes is ending. Today’s 0.50% hike is already a step in this direction, after 0.75% hikes for four successive past meetings in a row.

There are a wide variety of viewpoints concerning the interest rate versus recession debate. We believe we are already in a period of “stagflation” in which we experience both economic recession with a prolonged period of inflation going forward. A primary purpose of raising rates is to slow down the economy. The question is whether the Fed will exert too much pressure with monetary policy and push us into a deeper recession than anticipated. We feel that this debate will be settled in the first half of 2023, not in the second half.

The key going forward is the rate of decline for corporate earnings. The fourth quarter 2022 earnings announcement season which begins in January will set the tone for the markets in 2023.

The prolonged inversion of the bond market continues to trouble us. Another way to frame this is that the bond market is upside down. The 3 Mo. T-Bill currently pays 4.240% and the 30 Yr. T-Bond pays 3.573%. That is a difference of 0.667% which is a significant amount in this context. In a normal economic environment, the longer length security should pay more than the shorter length security.

Our response at Affinity Capital has been to maintain dividend paying, value-oriented equity positions and allocate a significant percentage of your portfolios in Treasury Inflation Protected Securities to yield double-digit income with lower volatility.

Cryptocurrency

Our viewpoint on cryptocurrency has been and continues to be one of avoidance. There is zero, we repeat zero, intrinsic value in these “investments.” It is not a “currency” nor is it classified as a traditional asset of any type. The U.S. IRS has classified it as property, but this is simply to have a means to tax it.

Can you make money? Sure – but it is what we refer to as “Vegas” money. For an average investor or gambler – luck be with you. There could certainly be strengthening regulation and adoption by central banks that could change the playing field, but we are far from that point. There are many funds based on cryptocurrencies but as our clients have seen, we have and will continue to avoid any temptation to invest.

Three Minute Digest for November 3, 2022

Thu, 03 Nov 2022 19:55:00 GMT

It is baseball World Series time and that master wordsmith Yogi Berra of the New York Yankees, an 18-time all-star and 10-time World Series Champion said, “It’s Déjà Vu all over again”. With that in mind, as the fed again raises interest rates, the stock market again sells off.

The next meaningful event to move the markets are the mid-term elections next Tuesday. Politics aside, the markets have historically favored divided government, meaning no one party controls both the legislative branch and the executive branch. As we have stated many times, it is less whether you know good news or bad, it is the uncertainty of not knowing that concerns the markets.

Next, a number of economic reports are impacting the markets. Home sales are significantly down, and inflation and gas prices remain high but show signs of stabilizing. The price of natural gas as we near the winter months will be a shock to our friends in the north as well as in Europe.

The Dow Jones Industrial Average had a strong October, but the tech heavy Nasdaq was basically flat. There is an old market adage that says, “buy on the rumor and sell on the news.” We believe that the October strength in the Dow may have priced in much of the expectations for this week’s interest rate hike as well as the election season coming to a close. We watch with interest for the market reaction to the mid-term elections. Are we set for a “Santa Claus rally” through the end of the year or has a relatively strong October for the Dow put us at the top of a bear market rally.

Much of the strength in the Dow was energy stocks and to a lesser extent, financial stocks. Technology stocks remain a drag on the markets. To lift ourselves out of bear market territory, financials and technology must lead us. While we see just a few pockets of strength in financials, we are carefully watching the technology sector for continued weakness.

While attention to tax efficiency for your accounts is a year-round job, the month of November is the time we begin mapping out year-end transactions from now and into December. There is a saying, “Don’t let the tax tail wag the investment dog.” We do not want to misalign our investment portfolio simply for taxes. With that said, there are numerous strategies to achieve the right long-term balance. Our expectations for 2022 are for an overall tax-efficient year for most accounts.

Third Quarter 2022 Market Comment

Thu, 06 Oct 2022 19:56:00 GMT

The U.S. equity markets continued to fall as the third quarter of calendar year 2022 ended. We are in bear market territory with little encouraging economic news. The good news is that our portfolios are approximately fifty percent U.S. Treasuries with the majority invested in T.I.P.S., or Treasury Inflation Protected Securities. While the bond markets are also struggling to provide positive returns, these securities are now offering double-digit monthly income to offset the mildly lower returns offered by the current bond markets.

We anticipate the benchmark West Texas Intermediate crude price to go back up to $100 a barrel, up from the current $88 per barrel. This bodes well for our already positive investment in the energy sector yet will continue to exacerbate the 40-year high inflation rates.

With gasoline prices high for the average consumer, the real metrics are natural gas as winter approaches and diesel fuel prices. Diesel is the lifeblood of the trucking industry, ships at sea and much of rail traffic.

The bond markets continue to flash warning signs as the five and ten-year treasury notes are yielding more than the thirty-year bonds. This is out of sync as the shortest notes should provide less income and the longest should provide the most income.

The markets are forward looking and at some point, the calculated valuations of the markets when compared to today’s prices will signal long-term opportunities. The same holds true for economic data. We are looking for long-term opportunities and are entering partial positions knowing that we may add to them if the markets continue to fall. We do know that the markets were at historic highs just last year and history has taught us that the American economy has survived every challenge put forth.

Individual Retirement Accounts – Required Minimum Distributions

The beginning of the fourth quarter is the time we reach out to clients regarding their required minimum distributions. To recap, this is when the IRS requires owners of traditional IRAs to make a partial withdrawal which is treated as ordinary income. This does not apply to ROTH IRAs. An individual turning age 72 during calendar year 2022 can delay the first “required minimum distribution” (RMD) from pre-tax retirement plans until 3/31/2023, but then will need to take a second RMD as of 12/31/2023. The 2019 SECURE Act changed the age requirement to begin RMDs from age 70 ½ to age 72.

We are here to discuss this with you and run long-term model calculations for you, as well as work with your tax professional directly to serve you at a high level. As with all tax matters we recommend consulting a tax expert for details.

As always, please reach out to us with any questions. We appreciate the opportunity to serve you!

Three Minute Digest for September 22, 2022

Thu, 22 Sep 2022 16:41:00 GMT

“Dogs have no money. Isn’t that amazing? They’re broke their entire lives. But they get through. You know why dogs have no money? ... No Pockets.” – Jerry Seinfeld

Interest rates are on the rise. Just like the prices at your supermarket, the cost of buying a house, a car or groceries and credit card rates are climbing. The Federal Reserve concluded their two-day September meeting by raising the federal funds interest rate by three-quarters of a percent. This is the third meeting in a row where the benchmark rates have been raised by this same amount as part of the continuing attempts to aggressively fight inflation. By making borrowing more expensive, the hope is to slow the economy. A slower economy is theoretically the answer to lowering demand which slows spending. If fewer people want to buy a product, in theory the price falls.

The Dow Jones Industrial Average sold off more than five hundred points following the announcement. We continue to hold the viewpoint that we are in a long-term downtrend for stocks and accordingly we are allocating approximately 50% of our portfolios in short-term U.S. treasuries and treasury inflation-protected bonds.

What to do with cash?

Many of our clients are asking what we plan to do with cash. We believe it is a great time to seed your investment accounts with additional funds since rising interest rates provide a better income producing scenario. Going forward, we are better positioned to take advantage of opportunities in the equity markets. In an effort to spur the economy forward after the 2008 mortgage crisis, interest rates fell to near zero. This created an extremely poor investment outlook for bonds. As interest rates climb in this battle to slow inflation, the income on bonds is more attractive. Keep in mind that the relationship between interest rates and the value of bonds is like a seesaw. As rates go up, the value of bonds go down and vice-versa. This is magnified by the maturity of the bond meaning that a one-year bond is less impacted than a thirty-year bond.

The yield or income on longer bonds is greater than the shorter bonds. If we borrow money with the agreement to repay the loan next month, the interest rate is small because the likelihood of repayment is great. If we borrow money with the promise to repay in ten years, the interest rate is higher due to the added uncertainty and risk. We are focused on short-term U.S. treasuries and treasury inflation-protected bonds of no more than three years due to their lower current level of volatility.

The Bond Market is speaking to us.

The bond market is flashing a big caution sign. It is currently out of sync, which has historically signaled the beginning of a recession. You may have heard of an “inverted yield curve.” A normal situation has lower interest rates, income, on short-term bonds and higher interest rates on long-term bonds. As a generic example, a maturity of one-year would pay 1%, a five-year would pay 2%, a ten-year would pay 3% and a thirty-year would pay 4%. This is a nice smooth upward sloping curve. Currently the five-year is paying 3.713% while the ten-year is paying less at 3.510% and the thirty-year is paying just a faction more than the ten-year at 3.518%.

Historically this signals a coming recession, although we believe it is already here, which gives us the worst of both worlds – inflation and recession at the same time. The bond markets gave signals starting last year and rather than the typical buy and hold, we began adopting a defensive posture in the portfolios. This is a challenging environment, and we look for opportunities. We depend upon our knowledge and experience to navigate through this difficult time as we wait for the next bull market.

As always, please feel free to reach out to us with your thoughts and questions. We appreciate the opportunity to serve you.

Three Minute Digest for September 8, 2022

Thu, 08 Sep 2022 18:18:00 GMT

“The best way to teach your children about taxes is by eating 30% of their ice cream.” - Bill Murray

Inflation, like taxes, eats away at our spending ability, another bite out of the ice cream cone. Unfortunately, inflation continues to eat away at our hard-earned income at rates unseen since the seventies. In an effort to combat inflation the Federal Reserve is expected to raise rates yet again at their upcoming meeting this September 20th and 21st. They have raised rates four times since March, by 0.75% increments at each of its last two meetings.

In its simplest definition, inflation is when the economy is growing too fast and raising rates is one tool to slow economic growth. The concern is an overcorrection and instead of slowing growth – growth stalls or even retreats, and we experience recession. Currently, there are economic indicators that say we are experiencing both problems which is referred to as stagflation.

So how does this affect the markets and our portfolios? Bonds are typically viewed as safe havens when compared to stocks but when interest rates rise, the value of bonds go down, so we exited most traditional bonds early in the rate hike cycle. The good news is that the yield, or income, on bonds rise as a percentage basis during these periods. We plan on re-investing in bonds, but the market is not quite there yet in our opinion.

With regard to stocks, the one-two punch of recessionary forces and inflation which equals stagflation makes for a difficult environment. The Dow has dropped almost 3000 points in the last two weeks. While the stock market had a good day today, our view is that further downside is ahead.

Jack Benny said, "A rich man is one who isn't afraid to ask the salesperson to show him something cheaper."

Who doesn’t like to buy something on sale? Well, the markets are on sale, and we feel the possibility of deeper discounts are ahead. With that said, we may still make some purchases at opportune times with a focus on income producing securities. It is a good time to have a cash reserve built up and the more cash the better. Now is the time to add funds to accounts in preparation.

As always, please feel free to reach out to us with your thoughts and questions. We appreciate the opportunity to serve you.

Three Minute Digest for August 30, 2022

Tue, 30 Aug 2022 12:34:00 GMT

A teenager lost a contact lens while playing basketball in his driveway. After a brief, fruitless search, he gave up. His mother took up the cause and within minutes found the lens.

“How did you do that?” he asked.

“We weren’t looking for the same thing,” she explained. “You were looking for a small piece of plastic. I was looking for $150.”

Cash has been a substantial asset class in our portfolios. We have taken much of the risk out of your portfolios and still posted appreciable returns against the indices. There remains concern for the health of the markets going forward.

Affinity Capital pays attention to the entire concept of investing as a whole, but just as the teenager was looking for a small piece of plastic, the mother was looking for its value just as we are looking at your entire financial life rather than a single impressive monthly or quarterly account statement. We all want to make money every day the market is open, but the goal is to achieve your lifetime financial goals.

A cash position is not of little strategic value in a portfolio. We believe that timing the market for long-term success is fraught with difficulty and we do not advocate this strategy. Increasing cash balances during obvious periods of market declines and significant economic uncertainty is prudent and has served us well. This is especially true as both stock and bond markets have declined in a period of economic “stagflation” not seen in fifty years.

There were rallies off the market lows and they came in two stages:

The first was “short-covering” or gaining as the price declines.
The second stage is investor money that was afraid of missing something and jump in. This is when emotion overcomes process and faith in investing.

There were three technical watch areas that we monitored during this rally from the market lows. These rallies had enough strength to reach the third level. The market did in fact reverse direction upon reaching our third level. We believe there is more long-term information about where and when to invest going forward especially after the Fed comment Friday from Jackson Hole.

The uptrend in the market broke last week and the Dow has sold off more than one thousand points. Our continuing belief is that this is a break in the bear market rally and the technical data points we interpret have been correct so far. The longer-term trend remains down! This market cycle will be measured over the next 12 to 24 months, at a minimum. Our present level of capital preservation mode is prudent.

We are in a position to evaluate levels in which to invest but overall, they are not encouraging. Nor do our fundamental tools such as economic data and corporate earnings provide a very inviting scenario for investing. The markets are forward looking but for now we see little optimism for next year. The Federal Reserve meetings centered around raising interest rates and the mid-term elections in November will be telling pivot points for the rest of 2022. Last week we added a 10% position of short-term Treasury Inflation Protected Securities, and we will continue to evaluate further opportunities.

We believe the best-case scenario is for the market to be stagnant going forward. Our Indicators tell us that breaking through the bear market rally and going higher is less probable. The likelihood of the markets falling all the way back down and lower remains a real concern. Cash is prudent yet a difficult choice to make.

Thank you for the opportunity to serve you and your family.

Charles Schwab Guest Market Perspective: Crossroads

Fri, 29 Jul 2022 19:15:00 GMT

Amid signs of slowing growth, the economy has reached a crossroads on key issues: Will we see a recession or a soft landing? Will Russia's scheduled "maintenance" shutdowns of a key natural gas pipeline endure long enough to hurt Europe's economy? Will longer-term Treasury bond yields be more affected by inflation or by slowing economic growth?

We don't know when we'll have the answers, but some clarity may emerge later this month. Second-quarter earnings season begins soon, potentially providing clues about the strength of the economy and how well companies are positioned to deal with it. July developments around the Nord Stream pipeline may tell us more about Europe's access to natural gas later this year. And while another interest rate increase is expected at the Federal Reserve's July 26-27 meeting, markets are looking forward to hearing what Fed Chair Jerome Powell has to say about the economy at his post-meeting news conference.

U.S. stocks and economy: Moments of truth

Is a recession coming? Economic bulls and bears are debating whether the data point to slower but continued growth (a "soft landing," to use the Federal Reserve's terminology), or a recession.

The state of the job market is a battleground in this debate. The bulls cheered the June U.S. employment report. The economy added 372,000 jobs and the unemployment rate was at a low and steady 3.6%.

However, the picture changes if you look at the leading job market indicators, which historically have previewed coming economic trends. For example, at turning points in the economic cycle, the monthly employment report’s "household survey"—which includes agricultural, self-employed, and private household workers that aren’t included in the main employment data—tends to be increasingly important.

As you can see in the chart below, the household survey has fallen much more sharply than the still-strong nonfarm payroll survey over the past three months. The drop in the leading measure doesn't necessarily prove that payrolls are peaking, but if they are, it would be consistent with prior instances in which the household survey previewed overall weakness.

Diverging payrolls

Source: Charles Schwab, Bureau of Labor Statistics, as of 6/30/2022. Y-axis is truncated at 3,000 and -3,000 to account for pandemic-related distortions.

Other leading job market indicators, such as weekly initial jobless claims and layoff announcements, also suggest the job market is softening. Meanwhile, consumer and business confidence are suffering in the face of tighter monetary policy, faster inflation, and slower growth, reflecting the weakness in financial markets and the outlook for corporate profit margins. Because labor is often the largest cost for companies, creating more new jobs could prove challenging.

At the same time, stock prices and corporate profits have become more correlated in recent years. That doesn't necessarily mean a drop in share prices automatically portends lower profits, but it's worth watching the relationship.

Better (or worse) together

Source: Charles Schwab, Bloomberg, as of 6/30/2022.

Note: Correlation is a statistical measure of how two investments historically have moved in relation to each other, and ranges from -1 to +1. A correlation of 1 indicates a perfect positive correlation, while a correlation of -1 indicates a perfect negative correlation. A correlation of zero means the assets are not correlated. Past performance is no guarantee of future results.

Company fundamentals are always critical, and the coming corporate earnings season is likely to provide some moments of truth for the market. Hopefully, managers' economic outlooks and forward earnings guidance will provide a clear sense of how well companies are positioned in this challenging economic environment.

One measure to watch for signs of weakening will be forward estimated operating margins. As you can see in the chart below, margins are off their recent highs but have largely trended sideways this year. A significant decline in margins would be consistent with prior market selloffs. Should that occur this year, we think it may be the catalyst for stocks' next move lower.

Operating margins on edge

Source: Charles Schwab, Bloomberg, as of 7/8/2022. Past performance is no guarantee of future results.

Global stocks and economy: Europe's big risk

Although Russia's invasion of Ukraine didn't immediately stifle European economic activity, the threat of a cutoff of Russian energy supplies to Europe remains an important economic risk. Europe's inventories of natural gas had been building at a typical pace for this time of year, after dropping to very low levels this past winter. As of July 9, storage was 62% full and on track to achieve a target of 90% by November, when winter heating demand typically begins.

Natural gas inventory had rebounded to average for this time of year

Source: Charles Schwab, Bloomberg data as of 7/11/2022.

On June 14, Russia's Gazprom cut natural gas delivery to Europe via Nord Stream, a pipeline running under the Baltic Sea, by 60%. This was purportedly to allow for maintenance work, to be followed by a scheduled interruption of supplies for 10 days starting July 11.

Officials in Germany, the country most dependent upon these flows, have expressed concern that gas deliveries may not return to normal levels after these interruptions, or that they might not return at all. In response to Gazprom's declaration, the German government raised the risk level in its national gas emergency plan to the second highest "alarm" phase, signaling disruptions but continued supply. They also announced the restarting of coal-fired power plants to conserve natural gas. Initiatives to ration energy, which would have considerable economic consequences, have yet to be announced. Direct restrictions on the use of natural gas kick in at the third and highest alarm level. Severe supply disruptions would have broad implications across Europe as Germany is an important gas hub for Europe, re-exporting on average more than 40% of its imports to neighboring countries.

If supply cuts are sustained, or worsened, and alternative sources can’t make up the gap, some rationing of gas may be necessary to reach the 90% storage target by November 1 and avoid a winter heating crisis. Additionally, because about 15% of German power is generated by natural gas (based on 2021 figures) and 40% of that supply typically comes from Russia, there is risk to about 6% of total electrical power generation.

Germany's power production by source

Source: Charles Schwab, Macrobond, Arbeitsgemeinschaft Energiebilanzen e.V. as of 6/29/2022.

If Nord Stream gas flows resume at a normal pace, the 90% target could be reached by reactivating some coal power plants and increasing imports of liquified natural gas from other nations. Rationing could be avoided.

If Nord Stream gas flows resume at only 40%, some economic impact may be felt. Germany's economy minister has said that any energy cuts would be targeted first at businesses rather than consumers. These might be direct users of natural gas such as the chemical and metal industries, which could slow economic output and potentially create supply-chain drags. Alternatively, reducing gas-powered electricity production by 2%-3% of total power generation and diverting those supplies to storage to reach the November target may be necessary. This has potential negative impacts to output for the large German automotive, mechanical, and electrical manufacturers reliant on a stable electricity supply.

In the worst-case scenario, if Nord Stream gas flows permanently cease in July, natural gas storage targets may not be achievable before winter. Deeper cuts totaling 6% of total electricity production might be needed to avoid a heating crisis, with greater impacts to industry and households. The German government would likely seek to lower demand by allowing natural gas prices to rise sharply, risking rising inflation and a recession. We will be monitoring Europe's access to natural gas closely as the July developments unfold.

Fixed income: Caught in the middle

Bond yields are caught between the prospects for inflation and recession. After surging to nearly 3.5% in mid-June when the Consumer Price Index (CPI) hit a 40-year high of 8.6%, 10-year Treasury yields have been trading in a volatile range around the 3% level. We expect the volatility to continue for the next few months. However, we believe that the impact of slowing growth and/or recession risk likely will drive long term yields, outweighing inflation concerns in the second half of the year.

With the Federal Reserve focused squarely on bringing down inflation, more rate hikes are likely in the second half of the year. We expect a 75-basis-point increase in the target range for the federal funds rate in July, and another 50-basis-point hike in September. At that point, the upper bound of the federal funds rate would be 3%, above the Fed's estimated neutral rate (that is, where policy is neither so easy that it risks inflation, nor so tight that it risks slower growth).

Because inflation is running far above the Fed's 2% target, it would make sense to move rates above neutral to get to a more "restrictive" policy. What we don't know yet is how restrictive policy will be. It's worth remembering that in addition to rate hikes, the Fed is also tightening policy by allowing its balance sheet to shrink. In other words, Treasury securities held by the Fed are being allowed to mature without the Fed reinvesting the proceeds (a strategy called quantitative tightening, or QT). Using QT should mean that the peak in the federal funds rate is lower than it would be if the Fed were relying on rate hikes alone to cool inflation.

The Fed's aggressive tightening risks tipping the economy into recession. Gross domestic product (GDP) growth was negative in the first quarter, and likely weak in the second quarter. Leading indicators of growth, such as housing activity, new business orders, and consumer spending all have turned lower in the past few months. Global growth is also slowing due to the impact on Europe of the Russia-Ukraine war, and China's stop-and-start COVID restrictions. Leading indicators suggest much slower growth in the world's major economies over the next six to 12 months.

OECD leading indicators for major economies

Source: Organisation for Economic Co-operation and Development (OECD), as of June 2022.

Note: The OECD's work is based on continued monitoring of events in member countries as well as outside OECD area and includes regular projections of short and medium-term economic developments. Y-axis truncated at 95 for scaling purposes. For reference, 2020 low for the United States is 92.3, OECD - Europe is 89.0, and China is 82.9.

Market-based readings on inflation expectations indicate more concern about growth prospects than about ongoing high inflation. Five and 10-year inflation expectations embedded in the Treasury Inflation-Protected Securities (TIPS) market have retreated to the 2.5% level.

TIPS breakeven levels are signaling lower long-term inflation expectations

Source: Bloomberg.
U.S. Breakeven 10 Year (USGGBE10 Index) and U.S. Breakeven 5 Year (USGGBE05 Index). Daily data as of 7/13/2022 The breakeven rate is the difference between the TIPS rate and the comparable-maturity Treasury rate and is used as a gauge for what market participants believe inflation will be five or 10 years in the future.

The outcome of running a tight monetary policy in a slowing-growth environment is likely to be further flattening or inversion of the yield curve, underperformance of riskier segments of the bond market and a stronger dollar. The yield spread between two- and 10-year Treasuries is already inverted, which in the past has been a signal of a potential recession.

The spread between 2- and 10-year Treasuries has narrowed

Source: Bloomberg.
U.S. Generic 10-year Treasury Yield (USGG10YR INDEX). Daily data as of 7/13/2022.

Riskier segments of the bond market likely will struggle relative to Treasuries in the second half of the year. In the corporate bond market, yields on sub-investment-grade, or high-yield, bonds have been rising faster than Treasury yields. These bonds tend to be more sensitive to economic growth, with a higher risk of default in a rising-rate/slowing-growth environment.

Emerging-market bonds are underperforming Treasuries and developed-market bonds due to the combination of slowing global growth and a strong U.S. dollar. Many of the issuers have high amounts of dollar-denominated debt that is now more difficult to service, with their currencies declining versus the dollar. We see the dollar continuing to stay strong until there is more confidence that the Fed's rate hikes have reached peak levels.

The U.S. dollar has strengthened

Source: Bloomberg.
Bloomberg Dollar Spot Index (BBDXY Index). Daily data as of 7/13/2022. Past performance is no guarantee of future results.

As the tug-of-war between inflation and recession fears plays out in the second half of the year, we expect to see continued high volatility in the bond market, but also believe there is a good chance that the cyclical high in intermediate to long-term yields may have been reached. We suggest investors focus on staying in higher-rated bonds and gradually add duration to portfolios in anticipation of lower yields by year-end.

https://www.schwabfunds.com/author/liz-ann-sonders

Three Minute Digest for July 15, 2022

Fri, 15 Jul 2022 15:12:00 GMT

A “Noisy” Market

When we say there is noise in the markets, it implies that there is extra news and information swirling around the fundamentals of long-term investing principles. Not that these issues are not of significant importance, or that we are indifferent to their impact on our friends and neighbors, whether they are local or global. The “noise” is more about the confusion that is created by a very disjointed period that confuses the market. We have mentioned repeatedly in our market comments that uncertainty is worse than the unwelcome news itself.

Bad News, Good News

The bad news is that uncertainty abounds and the information that we do know is not favorable. The good news is that we have an exceedingly elevated level of cash in our portfolios. Cash is a most strategic investment tool for long-term investors as we endeavor to limit the downside of the markets and seek to strategically reinvest at opportune times.

As written in previous comments, while the ‘noise’ revolves around whether there will be a recession by the general technical definition of two consecutive quarters of negative GDP – Gross Domestic Product growth. Our position is to simply say that it looks, feels, and sounds like a recession so let us just make it official. And we know that inflation is official since we have forty-year high inflation numbers. So, what we have is the worst of both worlds and that is “stagflation.”

With the end of this second calendar quarter, we are entering “earnings season,” when publicly traded companies announce earnings as well as their outlook for business.

Our expectations going forward:

Corporate earnings will be lower
The outlook for business activity will be lower
The Federal Reserve will likely hike rates by 0.75% to 1.00% at the July meeting
Like a seesaw, as interest rates rise, the value of bonds go down.
- We exited most bond positions last year and early this year
Gas prices may stabilize but will remain at significantly elevated levels
Supply chain issues will continue to impact the economy; however, companies have built up inventory just as inflation is causing consumers to cut back on spending
Issues such as the Russian invasion of Ukraine, Covid, and the mid-term election season will continue to affect the market going forward

So, what we refer to as noise in the markets is real and impactful, and it can distract investors from the principles of long-term investing such as well-balanced asset allocations, strategic versus emotional decisions and most importantly, patience.

While we hesitate to sign off with “Have a Great Day” after this less than bright Market Digest, we remind you that we believe we have weathered the storm well thus-far and with a high cash balance will work hard to continue to do so going forward. With the markets at historic high just last year, we have weathered war, oil embargos, terrorist attacks, a mortgage crisis and more.

As always, please feel free to call with any questions or to review your portfolios. Thank you for the opportunity to serve you.

Three Minute Digest for July 1, 2022

Fri, 01 Jul 2022 16:44:00 GMT

The S&P 500 has recorded its worst first half of any year since 1970. It is down -20.58% for the year while the tech heavy Nasdaq is down -29.51% for the same period. On average, our Affinity Capital Portfolios are down just over 13% with a sizable percentage of our weakness occurring this month as our holdings in the broad energy sector fell more than -18% the week of June 13 ^th . We added this particular position in September of last year and have enjoyed a more than 50% gain until this month. Should this position drop below our watch area, we will determine whether to sell and lock in our remaining gains until we get more clarity on the sector.

We expect volatility to continue into the new quarter and our portfolios maintain their highest levels of cash since 2008. This cash is extremely valuable. While we cannot time the market exactly, we will seek opportune times to reinvest.

The concerns about inflation continue to be the dominant theme for investors although a laundry list of concerns abounds. This includes Covid related slowdowns in Chinese manufacturing, supply chain disruptions, microchip shortages, worldwide commodity & food shortages arising from Russia’s invasion of Ukraine, the applications of Norway and Sweden to NATO with the potential to further inflame an irrational Russian leadership and an aggressive Federal Reserve policy to fight 40-year high inflation combined with a slowing economy.

The Federal Reserve raised the federal funds rate by 0.75% this month and the current expectation is for another 0.75% hike at their July 26-27 meeting. We have mentioned numerous times in our comments that the economy will typically experience either inflation or recession but not at the same time. While the US economy has not reached the quite simple technical definition of recession as being two consecutive quarters of economic decline, as reflected by GDP (Gross Domestic Product), we believe we are safe in saying we are there in all but name. Now add surging inflation and a behind the curve Federal Reserve trying to play catch-up. We have concerns that they will overshoot the mark of monetary policy actions and deepen the hole we are in. With that said, opportunities will be created over the next couple of quarters and years, and as long-term investors we remain optimistic. We think it helpful to revisit a selection from a past Affinity Capital Digest:

Stagflation:

The purpose of raising rates is to slow down rising inflation which is traditionally a result of a rapid economic growth cycle. Our view is that current inflation is less the result of a traditional business cycle and more the result of an overreaction to the pandemic by flooding the economy with trillions of dollars in government support, supply chain disruptions and spiraling gas prices. Meanwhile, we have recessionary indicators indicated by publicly traded companies reporting lower earnings, lower profit margins and less than optimistic business projections going forward. This combination of economic factors is often referred to as “stagflation” and this creates confusion about economic activity going forward. As we have often mentioned, markets like predictability but the conflicting economic measures and statistics of an uncoordinated business cycle creates market days like today.

With the end of the second calendar quarter comes “earnings season.” Public companies will announce their financial results and the markets will take great notice. Inflation dampens the value of a company’s earnings and therefore makes stocks less attractive to investors but a reaction to this may be more attractive income opportunities. We remain alert.

As always, please feel free to call with any questions. We are here for you.

Market Bulletin - June 15, 2022

Wed, 15 Jun 2022 17:02:00 GMT

Today will be an important day for our markets following the sell-off on Monday. The Federal Reserve Open Market Committee Meets concludes their two-day meeting and will announce a decision on raising the Federal Funds Interest Rate. Prior to Monday, the expectation was 0.50%. however, talk within financial circles indicates a 0.75% rate hike. The announcement is due at 1:00PM CST.

What is the Federal Funds Rate and Why is it Important?

The Federal Reserve or “Fed” through the FOMC, Federal Open Markets Committee set the Federal Funds Rate. This is the interest rate that banks charge each other to borrow or lend excess money reserves overnight. Banks are required to maintain a certain ratio of funds relative to their daily deposits. If a bank is under this level on any day, they borrow money from each other to meet the required levels.

While it may not seem like an overnight interest rate between banks would affect each of us, this rate is an important benchmark for most interest rates in the economy.

Today’s decision about interest rates is more about market psychology than real impact on the current economic conditions. Trying to affect short-term economic conditions with the Federal Funds Rate is like an aircraft carrier executing a U-turn in a river.

The purpose of raising rates is to slow down rising inflation which is traditionally a result of a rapid economic growth cycle. Our view is that current inflation is less the result of a traditional business cycle and more the result of the pandemic economic situation whereby the Fed flooded the money supply with trillions of dollars in government support. Supply chain disruptions and increasing gas prices have also played a key role. Therefore, the toolbox of traditional monetary policy adjustments may lack the necessary tools for the current economic fix.

Thoughts for Today

We sold a number of positions yesterday to raise additional cash:

If the markets are disappointed with the announcement, we maintain a more defensive posture.
If the markets respond well to the announcement, we are easily able to reposition assets.
The downside risk may be greater than the upside reward.

As mentioned in our bulletin Monday, any rise in the markets is another “bear market rally” and we remain cautious going forward. We believe that this is the early cycle of a prolonged economic downturn. The “average” bear market decline has been thirty nine percent and lasted fifteen months.

Even with stocks prices in bear market territory, financial metrics indicate that the markets remain overvalued and that either stock prices must drop further, or corporate earnings must rise. In this economic climate, we see further declines in stock prices as the path of least resistance.

The bond markets, rather than stock prices, are a better measure of economic health. They are currently presenting a confusing and less than confident outlook.

Mortgage rates have ballooned to over 6%. A slowdown in housing will ripple through the economy significantly affecting home builders, realtors, mortgage lenders, remodeling contractors, building materials, and furniture vendors.

Retail sales are down, currency markets are volatile, energy and food prices continue to rise, and most market price levels have broken down. For today, there are not a great deal of items in the positive column. However, with a great deal of patience, we will work through this to see better times ahead and high cash levels in our portfolios will be valuable when stocks are lower.

As always, we are here to speak to you about your investments.

Market Bulletin - June 13, 2022

Mon, 13 Jun 2022 23:57:00 GMT

The markets took a beating today. After rebounding from their low points in May, they have again turned downward confirming our belief that the positive market days over the last few weeks have been a “bear market rally.” We have sold numerous positions throughout the year, continue to hold a sizable percentage of cash, and hold numerous high dividend producing positions.

From our Affinity Capital 3 Minute Digest 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.

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…

The Nasdaq as of today has dropped another 8% and is down 33% for the year. We have previously written that often as goes the stock price of Apple Inc. goes the market. Apple has held up well, given the circumstances of the overall market but its price has now broken key levels. When we couple this with the 10-year treasury yield ballooning to 3.36% it brings us to an inflection point that will provide a window to decisions going forward.

The Federal Reserve Open Markets Committee meets Tuesday and Wednesday. The Fed has taken strong actions in managing interest rates and monetary policy since the Mortgage Crisis in 2008. While a traditional rate hike or decline is 0.25%, the recent hikes and continued expectations are for 0.50% increases and now analysts are forecasting a hike as much as 0.75% on Wednesday. Our question is “How will the markets interpret a 0.75% hike?” Will it indicate a level of panic by the Fed or a welcome aggressive move to combat inflation? The Fed says that they follow the data, but “stagflation” brings conflicting data.

The purpose of raising rates is to slow down rising inflation which is traditionally a result of a rapid economic growth cycle. Our view is that current inflation is less the result of a traditional business cycle and more the result of an overreaction to the pandemic by flooding the economy with trillions of dollars in government support, supply chain disruptions and increasing gas prices. Meanwhile, we have recessionary indicators indicated by publicly traded companies reporting lower earnings, lower profit margins and less than optimistic business projections going forward. This combination of economic factors is often referred to as “stagflation” and this creates confusion about economic activity going forward. As we have often mentioned, markets like predictability but the conflicting economic measures and statistics of an out of sync business cycle creates market days like today.

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

What's Investing Got To Do With It?

Mon, 13 Jun 2022 18:14:00 GMT

With so much bad news in the market, with talk of a global recession and a no growth decade for the stock market, what are we to do about investing? What has served us well since 2008 may not work in this market now.

The CPI report on Friday showed that inflation rose 8.6%, the highest rate since 1981, with shelter inflation high, which is one third of the index. Easing supply chain restraints and releasing oil reserves are key to the government’s response. Selling was widespread.

The Atlanta Fed’s GDP Now tracker shows the U.S. economy could be headed for a second consecutive quarter of negative growth, meeting the technical definition of a recession.

The likelihood of a global recession, first in Europe seems more likely, as the war in Ukraine continues to tighten a chokehold on the world’s food supply and slow productivity worldwide.

What does this mean for investing?

Due to elevated valuation metrics and serious geopolitical risks, as well as a higher household ownership of stocks, supply chain disruptions and margin and regulatory risk will affect the markets dramatically - more so than in the last twenty years.

After the Dot Com bubble and through the Great Financial Crisis of 2008, we saw 20% downward counter trends. The average annual return of 13% in the 2010’s (makes us feel old, right?) may not be attainable and note that the average annual return during the 2000’s was -0.9%.

What to do?

Make no mistake, passive investing will suffer.

Buy and Hold portfolios, will not increase the likelihood of success, even with the advantage of the baskets of issues in Exchange Traded Funds. We have been selling into these rallies consistently, actively moving assets into cash and income generating securities for safety during this volatile and unpredictable time. V

Who should worry?

Twenty-year market cycles tend to do better than ten-year cycles. If you are one of our younger Emerging Investors (sign up for information about our Emerging Investor program here ) your portfolio will be able to stand the test of time and investing comes with the added benefit of dollar cost averaging. Retirement account investing such as 401(k)’s will require special attention and should not be allowed to sit passive in fund choices.

Our clients closer to retirement still have a growth component to their portfolios but great attention is paid to hedging the portfolio for market downturns and will be more heavily invested in select income producing securities. This itself requites diligence as the choice for fixed income is not as simple as it once was. Decisions such as present and future tax brackets, the impact of rising interest rates and future income needs must be carefully considered.

Every one of our portfolios is put through rigorous risk metric testing where we assess the client’s lifetime risk as well as the expenses charged on every level in the portfolio. For many clients, we use planning software to gauge the impact of potential market returns and risks in the future. This is available to all clients.

Many of our clients are choosing to either age in place or move to facilities when they may require more assistance in everyday living. In both cases, special attention is paid to providing for the continued and often expensive cost of care. We work closely with many families to ensure that their loved ones are safe, both financially and personally. Elder Abuse fraud is rampant and getting worse and we collaborate with clients to minimize this risk for our older clients. We have resources to assist you with assessing elderly client risk.

Our tag line ‘Wealth Management for Life” reflects this comprehension of the parts of clients lives as it pertains to the whole. This is the definition of holistic that we see in many places related to financial advising. Its more than a term - it is a way of life for us, of interacting with our clients and their families on a meaningful level.

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

Thu, 19 May 2022 21:11:00 GMT

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.

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

Wed, 11 May 2022 15:56:00 GMT

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

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

Three Minute Digest for April 14, 2022

Thu, 21 Apr 2022 22:30:00 GMT

The brutal Russian Invasion of Ukraine has devasted millions of lives as well as the infrastructure of a land rich in natural resources and central to the economic health of Europe. Here in the United States, the markets face challenges with inflation data rising steadily for fourteen months and topping 40-year highs for the last four months . Discussions of recession are increasing, and we believe the term “stagflation” will soon be a topic for discussion.

Affinity Capital exited our positions in international markets in January and international emerging markets at the end of last year. We stated our belief that Russia would not move on Ukraine until after the Olympics as a gesture to Olympic host China. The 2022 Olympics ended on February 20 ^th and Russia Invaded on February 24 ^th .

In our January 26th 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. ” The question is whether there will be a high enough level of economic turmoil to propel Europe into recession. Fourteen percent of revenue from the 500 U.S. companies in the S&P 500 come from Europe and dominoes could fall our way and further slow U.S economic growth.

Recession Defined

A recession is defined as a significant decline in economic activity that lasts for multiple calendar quarters or even years. This includes rising levels of unemployment, falling retail sales, and lower levels of income and manufacturing. We do note that mild recessions are a normal part of the business cycle however our concern is when recessionary measures become extreme.

Inflation Defined

Inflation is a sustained rise in the cost of goods and services in an economy when the cost of energy, food, and most other goods and services rise faster than wages. A little inflation is a normal part of the business cycle, but a lot of inflation is obviously not favorable. As mentioned above, inflation data has been rising steadily for fourteen months and topping 40-year highs for the last four months. The Federal Reserve has kept interest rates excessively low since the 2008 mortgage crisis and our view is that they are behind the curve in managing interest rates. The rapid closing and opening of our economies due to COVID plus ongoing supply chain issues, energy policies exacerbated by Russia’s brutal war and trillions of dollars of government spending have all played a part in where we find ourselves today.

Stagflation Explained

Stagflation is an economic situation in which the inflation rate is high and economic growth rates are low - recession combined with inflation.

Where We Are Now

Good question! That is what the markets are trying to predict and why they are so volatile right now. Our view is that inflation, which drives higher interest rates, is the main concern for our portfolios. We have seen indicators that signal recession, but these signals can lead a recession by 12 to 24 months. As of now, we do see slower growth this year, but cautiously do not see clear indicators of a recession in 2022. As the markets enter the period where corporate America will announce their first quarter earnings, we anticipate reasonable earnings announcements but are extremely cautious on the market reactions to the statements companies will make as to future earnings projections. We expect these to be less optimistic in most sectors.

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

Three Minute Digest for March 31, 2022

Thu, 21 Apr 2022 22:26:00 GMT

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.

Three Minute Digest for March 16, 2022

Thu, 21 Apr 2022 22:18:00 GMT

The Russia/Ukraine conflict is now in its third week, with faint hopes of a diplomatic resolution, as the two countries met for the second straight day today. So far, negotiations have ended without any progress on a ceasefire, and we are doubtful that Russia has any serious intentions other than placating the world community with talk until they hope to reach their military objectives.

The latest Federal Open Market Committee (FOMC) two-day meeting began yesterday, and a statement is traditionally released Wednesday afternoon at 1:15pm CST, followed by a press conference with Fed Chair Jay Powell. It is widely expected the Fed will hike the federal funds interest rate for the first time since December 2018 by 0.25%, in an effort to combat rising inflation.

Inflation

After steadily climbing throughout 2021 the inflation rate has hit a 40-year high culminating with the energy price shock due to the Russian invasion of Ukraine. The U.S. Bureau of Labor Statistics (BLS) reported that the Consumer Price Index for all urban consumers was up by 7.9% in the 12-month period ending February 2022, the largest 12-month increase since the period ending June 1982. This means a $100.00 basket of goods as measured by the Consumer Price Index in February of last year cost you $107.90 this past February. Inflation can be viewed as either the process of continuously rising prices or, the continuously falling value of money.

The Consumer Price Index or CPI

There are approximately 175 items in the basket of goods that make up the CPI. It includes products and services such as housing, transportation, recreation, apparel, and education. The basic measurement is telling us how much the price of that basket of goods has changed over a one-year period. While there are many economic measures of Inflation, the CPI is the most closely watched.

What is causing our current inflation?

Economists use statistics, and if you are a long-time reader of Affinity Capital commentary you know that one of our favorite quotes by Benjamin Disraeli, that we use a few times each year, is “There are lies, damn lies, and statistics”. Ask an economist and you will get varied opinions, but the answers lie in the confluence of supply chain issues, surging demand, increasing production costs, rising energy costs coupled with an energy price spike via Russian aggression and over $5 trillion dollars printed in Washington and pumped into our economy since the start of the pandemic.

How does inflation affect our investments?

We are in an odd circumstance in that inflation has been rising but interest rates have not followed suit. Although we expect the Fed to begin raising the Fed Funds rate today, it is only a benchmark to which the markets expect to react accordingly. Rising interest rates will decrease the value of bonds, but on the positive side will also boost their yields or payments made to bondholders. We presently hold securities that are designed to navigate a rising interest rate environment. Additionally, rising inflation and rates are not necessarily bad for stocks, which we will address in the coming weeks.

As always, please feel free to call with any questions or to set a time to visit for a personal portfolio update. We appreciate the opportunity to serve you!

Three Minute Digest for March 9, 2022

Thu, 21 Apr 2022 22:17:00 GMT

RUSSIA

The Russian invasion of Ukraine continues to dominate the news. Russia has overwhelming military might versus Ukraine and time is on their side. An interesting aspect is that while Russia may have military dominance over Ukraine, they are having more difficulty than expected and their perception as a standing army military superpower has been deflated. Their nuclear strength is another matter. There is however a Ukrainian Resistance Movement that will trouble the Russians for the foreseeable future.

FED POLICY

The next Fed policy decision will take place following their March 15 ^th & 16 ^th meeting as inflation shows little signs of easing. The markets had been concerned and have reacted negatively to a potential 0.50% interest rate hike. Federal Reserve Chairman Jerome Powell indicated in his congressional testimony last week that considering current events, the hike may be a more traditional 0.25% move. This caused the market to rally at the time but without follow-through as the markets have returned to weakness.

OIL

The price of oil continues to rise reaching $130 per barrel. The price of oil is a key element to both the Russia / Ukraine war and the ongoing battle with inflation. We view inflation as the single biggest threat to the markets.

In last week’s Affinity Digest, we ended with “ Our next Digest will look at the effects of inflation and international events on the markets and our Affinity Capital portfolios. A sneak peek: While we are typically hard on ourselves, we are pleased with how our portfolios have held up during this market correction.”

As of yesterday’s market close, the year-to-date return of the Dow Jones Industrial Average is negative 8.45%, the S&P 500 is negative 10.61% and the Nasdaq Composite is negative 15.92%. For 2022, on average, our Affinity Capital Portfolios are lower between 5.00% and 5.50% year to date.

Of the five top performing sectors of 2022, our portfolios are overweight in four of these five sectors. Of the bottom six sectors we have weightings in two of them plus the tech sector which we have on average a 5.00% weighting. We sold one of our tech sector securities back in January but averaged into another tech position on weakness although they have continued to weaken. One thing we have learned is to never bet against American tech in the long-term although another 3.00% to 5.00% drop in the Nasdaq Composite could signal “the other shoe dropping”, whereby we would analyze whether to add on continued weakness or to step aside until the smoke clears and we have more clarity on the markets.

In January we also sold most if not all positions focused on international securities, small growth stocks and particularly convertible bonds which at that point had served us very well in 2020 and 2021.

We have several bond positions that are designed for a rising interest rate environment. In a very disjointed bond market, even these securities are showing weakness although when adding the dividends they pay us, are generally in good shape.

We see a great deal of research concerning the prospects in emerging markets but frankly, we are not seeing the opportunities as of yet. We exited our emerging market position in the third quarter of last year, an opportune time.

We are weighted in numerous sectors that traditionally hold up during inflationary times, with positions in energy, financials, materials, real estate, and industrials. Materials are surprisingly weak but our confidence in the sector remains.

As always, please feel free to call with any questions. Thank you for the opportunity to serve you!

If you have not done so already, please schedule your Portfolio Review.

Three Minute Digest for February 15, 2022

Thu, 21 Apr 2022 22:16:00 GMT

The markets continue to be concerned about rising US consumer costs and escalating tensions between Russia and Ukraine. Our thoughts lean towards Vladimir Putin playing high stakes hardball to position himself on a number of geopolitical issues with the West. There is a crippling economic downside for Russia from an invasion although China is more than willing to step in and fill the void if needed.

A decline in COVID-19 cases across the US prompted officials to relax some restrictions.

Three Thoughts for the Markets

Russia /Ukraine

Crude oil is approaching $95 per barrel and the psychological impact should it surge to $100 could be significant for the markets and our economy.

We are at point of maximum uncertainty for the Russia / Ukraine crisis. Vladimir Putin may sense weakness in the NATO / Western allies’ options to respond and at 70 years of age, he may see this as his best opportunity to cement his legacy of Russian dominance over the former USSR satellite nations. The main stated goal of deterring Ukraine from joining NATO has perhaps already been met although Putin is looking for a permanent declaration from NATO preventing Ukrainian membership.

The Nord Stream II pipeline is a key bargaining chip in this dispute. It is a new 745-mile gas pipeline running from western Russia to north-eastern Germany under the Baltic Sea. It follows the exact same route as Nord Stream 1 which was completed in 2012. It is designed to double the amount of natural gas flowing from Russia straight to Germany. Its owner is the Russian state-controlled gas firm Gazprom.

Inflation / Interest Rates

The consensus on Wall Street sees the Federal Reserve raising interest rates as many as seven times this year. Historically, rate changes are at 0.25% intervals. It is possible the March meeting may see a 0.50% hike and the market reaction to that is certainly to be determined.

The Federal Reserve or “Fed” through the FOMC, Federal Open Markets Committee set the Federal Funds Rate. This is the interest rate that banks charge each other to borrow or lend excess reserves overnight. Banks are required to maintain a certain ration of funds relative to their daily deposits. If a bank is under this level on any day, they borrow money from each to meet the required levels.

While it may not seem like an overnight interest rate between banks would affect each of us – this rate is an important benchmark for most other interest rates in our economy.

Canadian Truckers Protest

The protest began with the introduction of a new rule that all truckers must be vaccinated to cross the US-Canada border, but the protests have morphed into broader challenges to Covid health restrictions and the Canadian government in general. Truckers have gridlocked the area around their Parliament in the Canadian Capital of Ottawa.

The Canadian protest could move south and further impact supply chains, adding tension to an already nervous market.

Three Minute Digest for March 1, 2022

Thu, 21 Apr 2022 22:16:00 GMT

The Russian invasion of Ukraine continues to dominate the news, as it should. As mentioned in an earlier Affinity Capital Digest, Vladimir Putin, at 70 years of age, may see this as his best opportunity to cement his legacy of Russian dominance over the former USSR satellite nations. However, it appears to us that he may have miscalculated the international response, the military aspects of invasion and hopefully, growing internal opposition.

The next Fed policy decision is following their March 15 ^th & 16 ^th meeting as inflation shows little signs of easing.

The price of oil continues to hover between $90 and $100 per barrel. The price of oil is a key element to both the Russia / Ukraine war and the ongoing battle with inflation.

As the Russian invasion will dominate the world stage this week, we will limit our further thoughts to this subject.

Russian Banking System

Several Russian banks have been removed from the SWIFT system of international banking, which has caused the Russian ruble to plummet versus the U.S. dollar. The Russian National Bank has hiked interest rates 20%.

What is the SWIFT system and why does it matter?

The S ociety for W orldwide I nterbank F inancial T elecommunications (SWIFT) system is a network used by banks and other financial institutions to securely send money transfer instructions as well as other communications to each other and conduct international business.

SWIFT was created by a group of American and European banks in 1973 to prevent a single institution from developing and controlling a vital international system. The network is now jointly-owned by more than 2,000 banks and financial institutions. It is overseen by the National Bank of Belgium, in partnership with major central banks around the world - including the US Federal Reserve and the Bank of England. While there are other alternative systems and methods to conduct international business, they pale in comparison to SWIFT.

Numerous key Russian banks have now been sanctioned, although some are calling for a total ban of all Russian banks. Care should be taken to avoid unintended consequences that would hurt Western economies in the process.

Internal Dissension

We believe Putin has grossly miscalculated the international response, the military aspects of invasion and hopefully, the growing levels of internal opposition. The Ruble is the currency of Russia. Its value is plummeting as citizens line up at ATM’s and banks to withdraw their money. The Ruble is now worth 0.0092 versus one U. S. Dollar. Even Russian sports teams are being banned from international competitions. We can see this being framed as “Putin’s War” … not a Russian war. Russians will ask “What is the upside for the Russian people, business, or even military conscripts?” The likely answer is “nothing.”

Our next Digest will look at the effects of inflation and international events on the markets and our Affinity Capital portfolios. A sneak peek: While we are typically hard on ourselves, we are pleased with how our portfolios have held up during this market correction.

As always, please feel free to call with any questions. Thank you for the opportunity to serve you!

Three Minute Digest for February 5, 2022

Thu, 21 Apr 2022 22:14:00 GMT

Markets were higher for the week, as the Dow Jones Industrial Average was up 1.1%, the S&P 500 gained 1.6%, and the Nasdaq Composite jumped 2.4%. … even with a very volatile and scary Thursday for tech stocks.

The technology-heavy NASDAQ fell (3.7%) on Thursday in its largest one-day declines since September 2020. The S&P 500 lost (2.4%,) the Dow Jones Industrial Average fell by (1.5%). Facebook parent Meta lost $252 billion in market value, the biggest one-day value drop in stock market history, after weaker-than-expected user growth and revenue reports. Several other companies have missed revenue or earnings estimates, revised down future earnings estimates, and/or cited compressed margins due to higher labor costs.

Three Thoughts for the Markets:

Corporate Earnings Will Be Challenging

Companies’ future earnings forecasts are not as strong as they had been, and fewer companies are beating earnings estimates.

Bonds and Interest Rate Sensitive Securities

Federal Reserve is likely to begin rate hikes in March

With inflation at its highest level in decades. The Fed has signaled, and the markets expect rates hikes in the overnight Fed Funds Rate. This rate is a bellwether for interest rates in general. Interest rates for consumer loans, such as auto loans and business loans, may rise as the Fed hikes rates. Loans tied to short-term interest rates—like auto loans or credit cards—tend to be more sensitive to changes in the fed funds rate than mortgage rates, which are tied to long-term Treasury yields.

Stock and Bond Markets will be More Volatile

We believe volatility is here to stay for each quarterly earnings season and through the mid-term elections in November. The Russia / Ukraine situation is certainly a potential catalyst for event-driven market volatility. We believe that Russia would not act during the Olympic Games now beginning in China. While Russia covets Ukraine and China claims Taiwan, they see common ground in cooperation. China views the Games as an important bridge in building international relationships and Russia would not likely disrupt an international high point for their neighbor and increasingly friendly ally. But … it’s a coin toss.

Market volatility is unsettling, but historically not unusual at all. Most attempts to time the markets for long-term investors is difficult at best and history tells us that common-sense portfolio management is key. We sold numerous positions earlier in January including a tech heavy fund. Our portfolios average 12% in cash which we believe will serve us well in seeking opportunities during this ongoing volatility. We have been positioning our portfolios for higher rates and greater volatility through much of 2021.

Finally, Ignore the Noise! The TV news will shout twice as loud over a 100-point drop as they will a 200-point gain. Don’t misunderstand, we know that a loss in your portfolio is not “noise,” but we also understand that over time, volatility helps us to also enjoy our gains.

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

Newton’s Laws of Motion: Rising Markets and Share Buybacks

Thu, 21 Apr 2022 21:41:00 GMT

We are pleasantly surprised by the strength of the stock market and have maintained our portfolio allocations to participate in these gains even though we have numerous concerns that we highlighted last month. The list includes COVID, inflation, semiconductor chip shortages, general supply shortages, Chinese regulatory crackdowns, the U.S. debt limit, a government “shutdown,” Federal Reserve “tapering,” interest rate risk and rising oil prices.

We have an appreciation for Sir Isaac Newton and his gravitational laws. In the revised edition of Benjamin Graham’s classic text, The Intelligent Investor , it is noted that Sir Isaac stated that he “could calculate the motions of the heavenly bodies, but not the madness of people...” as it related to investing. He lived during the boom and bust of the East India Company, the South Sea Company, and the Bank of England. While he lived a comfortable life, it was not due to his investment acumen.

Sir Isaac taught us in his first law of motion that an object in motion remains in motion unless acted upon by an unbalanced force. We believe our current markets are enjoying this path of least resistance as supported by the continuing economic reopening following COVID and the record amount of corporate stock repurchase plans.

In his second law, he tells us that the acceleration of an object depends on its mass and the amount of force applied. If the acceleration of our object is the re-opening of our world economy, it is as powerful as anything Newton could have imagined. The amount of force applied encompasses many factors, but we are going to focus on corporate stock repurchase plans.

A stock repurchase plan is when a company buys back its shares from the marketplace. This allows a company to use their accumulated cash to re-invest in themselves. The repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced.

The company is increasing demand for their stock by purchasing shares on the open market and simultaneously limiting shares in the market by removing those purchased shares from circulation. This keeps the stock price in motion by accelerating the price and increases the force of its earnings.

Fewer shares in the market positively affects the calculation for earnings per share. This is an important and significant data point for all investors to use in evaluating an investment. Simply put, better earnings tend to equal more demand for the stock which equals a rising price.

As an example, and staying with our Sir Isaac Newton theme, Apple has $200 billion dollars in cash and marketable securities. They are on pace to purchase $100 million dollars of their own stock in 2021 alone. It is always a benefit when a company returns money to their investors by purchasing their stock or paying a dividend. A value of share buybacks to an investor is that it can help your investment appreciate without a tax consequence. A dividend is also valuable to an investor, but it is taxable when paid.

A current legislative proposal, the Stock Buyback Accountability Act, would levy a 2% excise tax on the amount corporations spend to buy back their own stock. It is forecasted that stock repurchase plans will reach $800 million dollars in 2021 alone. While the general discussion revolves around the negative effect this may have on our markets, we believe the effect will be muted since share repurchase plans will remain a highly desirable use of excess cash. This tax could lead companies to direct more cash to dividends, which are of course taxable to the investor. This may a better choice for smaller companies with active share repurchase plans.

The Fed and Interest Rates

The Federal Open Market Committee (FOMC) announced the start of balance sheet tapering of U.S. Treasuries and mortgage-backed securities at a pace of $15 billion per month

From our Affinity Capital Blog Post on September 24, 2021

“What is the Federal Reserve “Tapering”?

In response to the market disruptions caused by COVID, the federal reserve began purchasing $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities (MBS) each month. The purchase of such large amount of bonds reduces the supply and the demand from private investors increases which cause the prices to rise. Supply & Demand! This also pushes interest rates down which promotes growth in the economy.

As the economy strengthens, Fed officials began talking about “tapering” their purchase of bonds in the open market. This simply means a gradual slowing of their purchases rather than an immediate stop, which would be a shock to the financial system.”

As the process of slowing the Fed’s purchases begin, it is likely that the door is open to look at interest rates hikes in the second half of 2022. Rising interest rates affect most all investments in one way or another and as your portfolio manager, this is an issue to which we remain attentive.

Interest rates and inflation go hand in hand. We are all seeing rising prices at the gas pumps, supermarkets, restaurants, utilities …everywhere. Of course, these issues affect your investments but there are many strategies to both minimize their effects as well as profit. Please know that the effects of interest rates and inflation are actively being addressed in your portfolios.

From our Affinity Capital Blog Post on September 24, 2021

“… we believe part of our job is to worry for you so you can sleep better at night. We are always concerned about what might affect your portfolios and then try to minimize those concerns… Our response for much of this year has been to lean towards value versus growth and focus on traditional guards against inflation such as financials, convertible bonds, interest-rate hedged bond funds… The good news is that our long-term approach to investing has been to always maintain a balanced approach to our asset allocation.”

We appreciate the opportunity to serve you, your family, and your friends. We would like to thank you for the trust and confidence you have placed in us with your referrals. Historically, we have done little marketing. The growth of our business through your referrals allows us to spend more time in serving you.

As always, please feel free to reach out to us with any comments or questions. Thank you again!

A Roller Coaster Market of Inflation Fears and International Concern

Thu, 21 Apr 2022 21:40:00 GMT

As we entered the final months of trading for last year, we asked the question, “Have we seen the market highs for the year?” Our estimation at the time was, “We are going to lean to an answer of … yes.” The markets did find new highs. See our comment here: www.affinity-cap.com/blog-01/two-questions-about-market-today

The following month we stated, “We are pleasantly surprised by the strength of the stock market and have maintained our portfolio allocations to participate in these gains even though we have numerous concerns that we highlighted last month.” We explained our belief that companies buying their own stock in huge quantities was artificially propping up the markets: www.affinity-cap.com/blog-01/newtons-laws-motion-rising-markets-share-buybacks-0

We also said that we believe that inflation and rising interest rates are the primary issues on which the markets will focus.

Other issues included COVID, inflation, semiconductor chip shortages, goods shortages due to supply chain disruptions, Chinese regulatory crackdowns, the U.S. debt limit, … Federal Reserve tapering of interest rate risk and rising oil prices.

We also asked the question, “are we facing a long list of worry or opportunity?” First, we believe part of our job is to worry for you so you can sleep better at night. We are always concerned about what might affect your portfolios and then try to minimize those concerns. In the short term, we do see challenges that should be monitored. As for opportunities, they may be more difficult to realize going forward. As of today, we believe that the markets will be challenging through the mid-term elections on November 8, 2022.

We were in fact correct in our beliefs at the end of last year, just a bit early in our call.

One of our key concerns for over a year has been inflation and rising interest rates. We add a current concern of the situation with Russia and Ukraine as well as the opportunity China may exploit regarding Taiwan.

Inflation and Rising Interest Rates

There are two key barometers which Wall Street investors monitor closely. One is the yield on the 10-year Treasury note. The 10-year Treasury note is a debt obligation -think of a bond or a certificate of deposit - issued by the United States government with a maturity of 10 years. It pays interest at a fixed rate or yield.

The 10 Year yield started in January at 1.52%. Last week it had spiked to 1.87%. While the numbers may appear small, that is an increase of 22% in just a few weeks and the expectation is that it may go higher. This is confirmation of inflation fears that we all see each day in the prices of gas, food and most everything consumers and businesses purchase. A little inflation means a growing economy, an elevated level of sustained inflation equals a host of problems for our economy. Right now, it is the fear of future uncontrolled inflation that is so concerning to the markets.

The second key barometer of inflation and rising interest rates is The Federal Open Market Committee or the FOMC. This is the branch of the Federal Reserve System whose mission is to promote stable prices and economic growth. Simply put, the FOMC manages the nation's money. The twelve members of the FOMC meet eight times a year to discuss whether there should be any changes to near-term monetary policy.

As their mission to promote stable prices involves fighting inflation, their actions are closely monitored by the markets. It is forecasted that the FOMC members may vote to raise rates as many as three times this year in an effort to slow the rate of inflation.

Russia and Ukraine / China and Taiwan

Mixed signals abound within the question of whether Russia will make advances on Ukraine. In 2014, Russia moved into parts of Ukraine and still maintains control of key areas. Russia sees Ukraine and all the satellite countries of the former USSR as traditional and historic pieces of their homeland. Russia fears that Ukraine or other bordering countries may be invited to join The North Atlantic Treaty Organization, NATO, which has agreements to defend any member countries against aggression.

Russia has vast energy, mining, and agricultural resources. Disruption of these industries through further sanctions or military conflict would have serious repercussions for world markets.

At the same time, China has increased their verbal rhetoric and their military activities around Taiwan. The question of Taiwan’s sovereignty from China dates to 1949 although it is a long and complicated history. Taiwan is a rare case in which Washington has a security partnership with an entity with which it does not have diplomatic relations.

Our response for much of the past year regarding inflation and economic concerns has been to lean towards value versus growth and focus on traditional guards against inflation such as financials, interest-rate hedged bond funds, a REIT fund, or Real Estate Investment Trust, and energy. We also have an allocation to Treasury Inflation-Protected Bonds although this is an investment in which the name implies an obvious solution to rising rates, but the mechanics of these securities are a bit more complicated and require close monitoring.

Here in 2022, we have sold our international fund, sold our remaining position in small cap growth as well as our Nasdaq mid-cap fund and maintained a higher level of cash that will serve us well if this market volatility continues. We added to our technology heavy Nasdaq position as it weakens and may add more if it falls to another key support level.

In our evaluation of the more technical aspects of the buying and selling in the markets, we see some key breakdowns in numerous areas. While we could see buyers come into this market looking for bargain days, we remain cautious and watchful.

Top Market Headlines: Simplified!

Thu, 21 Apr 2022 20:53:00 GMT

There have recently been several stories affecting the markets, so we thought we would simplify some of the issues for you. While these may not be the biggest headlines in the news, they are market oriented and therefore affect our portfolios.

Chinese Regulatory Crackdown

Last month, the Chinese government unveiled a five-year plan outlining tighter regulation of Chinese commerce. It appears that every aspect of Chinese business and perhaps culture will be scrutinized in the world's second largest economy.

The plan will address monopolies and "foreign-related rule of law", each aspect of the technology sector, music licensing deals, and even scrutiny of after-school tuition services offered by individual teachers.

As part of China’s regulatory tightening of debt levels and speculation in real estate, China Evergrande Group, which epitomizes the borrow-to-build business model and was once China's top-selling developer, has missed two debt payments. Worldwide markets are left to speculate whether this is the first of many dominos to fall in the Chinese markets.

Although American companies have exposure to the Chinese, Affinity Capital does not have any direct exposure to Chinese securities.

The Debt Limit

The debt limit that is being discussed so frequently is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt and tax refunds, among other payments.

The current debt limit is $22 trillion dollars. As of June 30, 2021, an additional $6.5 trillion had been borrowed, bringing the amount of outstanding debt subject to the statutory limit to $28.5 trillion dollars.

This does not include the current two spending bills being negotiated of $1 trillion and $4.5 trillion dollars, adding to future debt, and of necessitating another debt limit hike in the future.

Failing to increase the debt limit would cause the government to default on its “current” legal obligations which is an unprecedented event in American history and unlikely to happen. Congress has never failed to raise a debt limit. We highlight the term “current” because this is often confused with spending bills going forward in which political negotiations can result in a government shutdown.

A Government “Shutdown”

The federal government’s fiscal calendar runs from Oct. 1 to Sept. 30, meaning a shutdown will occur if lawmakers do not pass a 2021-2022 budget by the end of this month. There have been 21 shutdowns with most lasting days and the longest lasting 21 days in 1995.

Mandatory spending for entitlement programs like Social Security, Medicare, and Medicaid, are not subject to annual appropriations so they are not affected, although the administration of these programs can be affected by staffing furloughs.

What is the Federal Reserve “Tapering”?

In response to the market disruptions caused by COVID, the federal reserve began purchasing almost $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities (MBS) each month. The purchase of such large amount of bonds reduces the supply and the demand from private investors increases which cause the prices to rise. Supply & Demand! This also pushes interest rates down which promotes growth in the economy.

Inflation and Rising Interest Rates

As the Fed looks to taper their bond purchases, this indicates a growing economy, and a byproduct of a growing economy is inflation. One of the key elements of the federal reserve’s mission is to fight inflation. The evidence of inflation in our everyday lives is quite clear in our daily trips to grocery stores, restaurants, and gas stations.

A little inflation is good, a lot is bad. A tool that the Fed possesses to fight inflation is adjusting the short- term federal funds rate. This rate essentially sets the benchmark for rates throughout the economy. A higher interest rate slows the economy. Would you rather buy a house with a 3% interest rate or an 8% interest rate? We have less incentive to spend, and the result is a slower economy. The goal is to find the economic sweet spot. We may not buy a home at 8% but we may still buy one at 5 or 6%.

Keep in mind that rising inflation is not necessarily a negative for stocks. The uncertainty of the Goldilocks story is what can rattle the markets – too little, too much or just right. Over the last year, Affinity Capital has increased our exposure to interest-rate hedged bond funds, financials, and other rising interest rate friendly investments.

We hope this has been an informative look at current situations affecting the markets currently.

As always, please feel fee to reach out to us with any questions or to schedule a visit. Thank you for the opportunity to serve you.