Telemus Weekly Market Review August 22nd - August 26th, 2022
Stocks fell this past week following Federal Reserve Chairman Jerome Powell’s speech at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. The speech was rather short and to the point. Chairman Powell made it clear that the federal funds rate, the interest rate metric the Federal Reserve controls, is now at a neutral level, but with inflation remaining stubbornly high, it needs to go higher. His words also reinforced that the Fed needs to slow the level of demand in the economy, indicating they are comfortable with a recession if that is what is required to get inflation back in check.
In the current environment, higher interest rates are a negative for stocks as they as they warrant lower valuation multiples. In addition, lower economic demand and the potential for a recession aren’t good for corporate earnings results. Combined these factors drove stocks lower this past week. Most of the S&P 500’s -4.0% weekly loss came on Friday, following Chairman Powell’s comments, when the S&P retreated by -3.4%.
Despite Friday’s outsized pullback, stocks have had a strong rally from their lows on June 14th and quarter-to-date the S&P 500 is up 7.5%. Share prices may have gotten ahead of themselves and the reaction we saw this past week reflects market expectations being reset. As investors, we must remain conscious of the uncertainties that exist. As we entered 2022, we believed it was important to be cognizant of a wider range of potential outcomes given the various moving currents in the economy. As we are now close to two-thirds of the way through the year, some of these potential outcomes have become clear, however, increasing geopolitical tensions have added an additional level of uncertainty.
We remain optimistic about the long-term opportunities ahead for investors but acknowledge it will be anything but a straight path, with ups and downs occurring along the way. I was asked the question this past week about whether one should take some proactive steps with their portfolio given the heightened tensions around Taiwan. My response was that we can’t predict with precision what will happen, and one shouldn’t invest based on the expectation for a single set of outcomes. During market environments like the present is when diversification becomes more important. Not just allocating across stocks and bonds but being conscious of exposures and risks within your stock and bond portfolios. In addition, cash investments are now providing an attractive yield and holding some added cash as dry powder to take advantage of opportunities as they arise makes sense to us. We view this approach as a prudent all-weather strategy to manage what appears to be a winding path ahead.
All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value. Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. The S&P 500 index includes 500 leading companies in the US and is widely regarded as the best single gauge of large-cap US equities.
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