ECONOMIC IMPACT. The Ukraine/Russia war has likely raised the odd of recession tied to the elevation of commodities especially energy as well as basics like food. Offsetting this is waning of Covid-19 cases and lifting of restrictions (as a political stunt) ahead of the mid-term elections which has recently strengthened economic growth. Although the war will likely cause the Federal Reserve to lessen its aggressiveness in fighting inflation it will need to nonetheless move to raise rates fueling a slow down. History, says EVERY time oil rises 50% a recession occurs and this has already come to pass. With a multitude of structural issues and headwinds facing economic growth the current environment is no exception.
The conclusion is since inflation is running higher and may go higher tied to the war the bump in consumer spending tied to covid-19 waning maybe short lived & as may economic growth in the months to come. In fact, it may lead to negative economic growth or recession.
INVESTMENT IMPACT. Our conviction on being overweight healthcare has never been greater given our negative outlook on economic growth. For the week we reduced exposure to bonds in leu of preferred stock given our inflation outlook and better yields. As expectations of economic growth wane we are witnessing lower long-term bond yields which should bolster preferred stocks. Other than that, the portfolio models remain largely unchanged other than shifting some allocations around within healthcare.
We remind investors that going forward expectations for returns for the overall market over the next decade remain low as we expect well below returns vs history. Be that it may we are hopeful our models can improve on that going forward.
Our model portfolio performance has been updated on our website as of 2/28/22.
For more insights see our website and disclosures found there at BCA. The thoughts contained in this newsletters are intended lend insights into BCAs current & future thinking on changes to BCA model portfolios. They are not intended to be recommendations and should not be taken as such. As always contact us for further explanation of how these events can affect your finances. To unsubscribe from our newsletters & website please email us with "unsubscribe" in the subject.