PFA Updates

Are You a Tourist or a Resident?

Aug 11, 2022

Hello, friends.

We hope you are well and enjoying these final weeks of summer weather. Our Investment Committee met recently to review the markets, economy, and our investment models. We are happy to see that July was a positive month. In fact, from the June 16, 2022 low, the markets increased over 9% through the end of July. [1]

It's hard to believe that the market has only been negative for seven months. Coming off record growth years in 2019, 2020, and 2021, this downturn has felt a lot longer, maybe because we got used to the markets going up. Seven months is frankly a blip in history. Long-term thinking tends to get lost in times like these, which leads me to ask the question in the title; are you in the markets for the long term or are you just visiting? 

We are long-term believers in the stock market, or residents, and forward-looking. Though we don't believe we are completely out of the woods yet, we are encouraged by some of the data and commentary we have reviewed recently. Our Investment Committee is making no changes to our current strategy and is looking for a favorable time to buy back into the market with the cash we set aside to reduce risk. 

As always, if you have any questions about our strategies or your personal investment accounts, please feel free to reach out to us. Below are some interesting comments from some of the smart people we follow:

Regarding the Economy

"What recession? Sales and earnings, both actuals and estimates show no negative growth in any quarter. To date, 74% have topped EPS estimates and 66% have exceeded their sales expectations. Typically, both of these growth figures go sharply lower during a recession." [2]

"The US consumer is employed, has money to spend, and is spending it. When around 70% of the economy is consumer spending, it's hard for me to connect the dots between that and recession." [3]

"The US is not in a recession, at least not yet. Industrial production rose at a 4.8% annual rate in the first quarter and at a 6.2% rate in Q2. Unemployment is lower now than at the end of 2021. Payrolls grew at a monthly rate of 539,000 in the first quarter and 375,000 in Q2. If we were already in a recession, none of this would have happened." [4]

"The ISM services index continued to advance in July. It also marks the index's highest level in three months. June factory orders rose, beating expectations. Spending on equipment exceeded expectations, suggesting strength in the US manufacturing sector despite rising interest rates." [5]

"My take at present is that inflation will cool in coming months enough to satisfy the stock market and allow it to find some upside. Economic and earnings data is likely to show further signs of slowing which could give the Fed clearance to reduce the size of hike coming in September. Another positive for the market near term." [6]

Regarding the Markets

"We do not believe the bear market is over."

"The next two months (August and September) have been the 2 worst performing months for the S&P 500 over the last 30 years." [7]

"Stocks have been beaten down. That doesn't mean we won't see more downside for some stock markets around the world, especially given that earnings expectations are likely to be adjusted downward. But I believe we are far closer to the bottom than the top - and meaningful positive catalysts could present themselves in coming months." [8]

"We are now well into the mid-term off-presidential election year period which historically produces an excellent buying opportunity. The most likely time frame for a market turning point to develop is from August to October." [9]

Keep the faith friends, this, too shall pass.










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