BCA Weekly Commentary 9/2/22: Dialing Back Risk
ECONOMIC IMPACT. With the likelihood of another 50 basis point rate hike in a few weeks by Federal Reserve and maybe a few more likely albeit smaller hikes into years end, the economy may slow further. Even more so into 2023 potentially as rate hikes usually take quarters to get reflected in an economy and last few months we have had significant ones. It maybe sometime before rate cuts come into play which is why worries on growth resurfaced this week. Worse the Fed is going to accelerate tightening policy by reversing its money printing significantly this month into years end. All this spells even slower economic potentially growth ahead.
INVESTMENT IMPACT. The markets risk appetite has waned since expectations of rate cuts not hikes were dashed over the week. Selling began in technology and has spread in some cases indiscriminately across all growth sectors even health care as funds decrease their market exposure. Our models saw our share of losses as a result. Since economic growth may continue to slow this may continue into such time earnings have either fallen enough or expectations of rate cuts resurface. Despite our belief health care (where our exposure is greatest) should be more resilient to slower economic growth, we have reduce equity or stock exposure in our growth models especially to reflect the potential of further selling or losses. Although health care maybe resilient we have seen periods were all stocks fall when funds liquidate or reduce exposure.
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 the date of this newsletter.
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