ECONOMIC IMPACT. Expectations the last week on hyper rate hikes by the Federal Reserve in months to come were tapered slightly as commodities pulled back and weaker economic data followed. Oil remains elevated still and that MAY hold the key to fully extinguish inflation fears IF it falls below $90/ barrel. However, the effects of on going inflation, higher rates and tighter monetary policy are yet to be felt on corporate earnings thru 2022 & 2023 in our view. Thus, so even though fear of inflation has peaked it may still translate into sustained weaker economic growth. Our worries continue to be on growth less so inflation going forward as recession risk are real as inflation has eroded the buying power of all but the 1% of Americans.
INVESTMENT IMPACT. Market rallies in a bear markets are typical as hope of a rebound almost always gets ignited by some short term good economic news. The issue with markets is that weaker economic growth tempers inflation worries and rates causing a shift to growth stocks. However, that's predicated on Fed reversing course, cutting rates, some time with 12-18 months and we DO NOT think that's will be the case. Pause maybe but rate cuts don't think so. As we have stated above 2023 earnings which may still need to fall in reflection of tighter monetary policy thus rendering the hope with the reality that slower growth or recession MAY NOT be baked in yet. Yes markets fell to reflect the fear of higher rates/ inflation, but maybe not slower earnings or even negative earnings growth which maybe coming.
Thus, overall we continue across models with elevated cash levels after trimming or eliminating some of the higher valuation growth names of the portfolio as we move into earnings season.
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 as of 6/27/22.
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