Happy Belated 4th of July Legacy Wealth Alliance Family,
I love fireworks. Growing up in Colorado, there used to be only one 4th of July fireworks show in town. Once the sun went down, you needed a light jacket to stay warm. Lying on the grass and listening to patriotic music, the pyrotechnic display occurred right above me. If I put my hand up, I could feel the heat of exploding color, loud booms shaking the ground, and listening to the “Ooh’s” and “Aah’s” of the crowd, watching the light expand against the night sky, only to disappear into smoke and have the wind blow it away until the next one. If I close my eyes, I still can get there and relive those memories. I remember how much pride I had being born and raised in the USA, thankful for the men and women of the Armed Forces that gave their lives in battle to preserve those rights and freedoms for me, and if that was you, and for some it was, “Thank You” for your service. As my grandfather would remind me “freedom is not free,” having served in World War II, while it may not have cost you anything, someone paid for it with their life.” What a humbling thought, and I am truly blessed and grateful.
“Fireworks.”, certainly seems to be the right way to describe the first two quarters of 2022. You can see the fire trail once launched, watching it disappear, and waiting briefly in anticipation of where the colorful illumination will explode into the night, anxious to see what comes next. The volatility in the stock market has officially pushed the stock indexes into Bear Market territory during the month of June. Inflation, not seen since the early 1980s, has been felt by all consumers at the gas pumps and the grocery store. A shrinking talent pool refusing to return to the office (The Great Resignation) and the competition among employers for workers, has caused dramatic pressure on wages. Then, there is the actions of the Fed, after sitting on the sidelines during the first quarter providing caution to prevent the economy from sputtering, Chairman Powell increased the rates in April (.25%), May (.50%), and June (.75%). While July has yet to be determined, much of Wall Street is expecting .50% to .75%. In fairness, while June had not seen rate hikes of this magnitude since 1994, something drastic needed to be done when the May inflation numbers reached 8.50%. The Fed’s position seems to be turning from “caution” to “price stability” as Chairman Powell indicated in his remarks last month, and while he never said it, potentially at the risk of a recession.
The Fed’s primary lever for combating inflation, is raising rates. Inflation, unemployment, and 2nd quarter earnings will be reported this month, and we will see if the Fed’s more “hawkish” posturing continues after this data is released. Interest rate adjustments are needed, as rates have been low for some time. At times, government action is slow to respond and with criticism from Wall Street, I am hopeful the Fed does not get overzealous and raise rates too much or too fast. Most actions by the government are well intended to solve challenges, and yet, those same actions can cause bigger problems. Obamacare at its inception, was intended to cut medical costs and premiums making healthcare more affordable for every American, and while most Americans can now get medical coverage, it failed in its mission to contain medical costs, causing prices for medical coverage and services to increase. Will the Fed, in their zeal to control inflation (which must be done), become overzealous in their plan of action? This action may cause some landslides victories during the upcoming mid-term elections, and as the elections get closer, may begin to temper the markets to some degree.
I know what you may be thinking, “we thought you write these commentaries for encouragement and opportunities when markets get tough?” and you would be right – we do, trying to save the best part for last, acknowledging things are a bit unnerving causing an uneasy feeling in the pit of your stomach. Some of you are changing your retirement plans because of what is going on. As is always the case, this too shall pass with time.
Despite what is happening, there are always decisions within your control that you can do:
Securities and investments and advisory services are offered through Royal Alliance Associates, Inc, (RAA) member FINRA/SIPC. RAA is separately owned and other
entities and or marketing names, products or services referenced here are independent of RAA.
- YOU are in Control – Your feelings and concerns are real. However, you control what and whether or not you feed them. If you feel your anxiety and worry level rising, please turn off ALL media. This includes the evening news, the newspaper, and social media. Your mind will dwell on what you “feed” it, and there are still a lot of positive things going on. I usually turn to Ted Talks, as there is a variety of positive content on many of life’s lessons, with most under 20 minutes long. Feed your mind with positivity, and you guessed it, “YOU can change how you feel and see the world around you.” Take control.
- Stocks are on Sale – There are strong, blue-chip companies that are drastically sale priced for those that have cash to invest. Companies with good leadership and management (i.e. Amazon, Tesla, Apple, etc.) have seen their stock prices fall. For example, Amazon is down -36%, currently. These stocks are not going away and buying low (more shares) is an important concept in investing. While the markets may still go lower, and if your timetable is 3 – 5 years into the future, the markets have proven to be resilient over time.
- Raising Rates are Good for Yields – Interest rates have been down for a long time, and some of you remember when you could get double-digit interest rates on CDs at the bank. Since rates and bond yields have been low, investors were forced into the stock market at a higher degree of risk, chasing better returns. As rates continue to climb and eventually stabilize, it will be a good time to consider reducing exposure to the stock market and locking in higher rates from bonds for longer terms. This will allow more favorable yields at a lower risk.
- “DO NOT STOP.” – The tendency when the markets show losses, is to stop contributing. “DO NOT STOP.”. If you are contributing to your 401k plan, “DO NOT STOP.”. If you make monthly investment contributions with us, “DO NOT STOP.”. If you have extra money in cash, or a surplus of capital left over after the bills are paid every month, “START MAKING MONTHLY CONTRIBUTIONS.”. For business owners with retirement plans, encourage your employees to continue their contributions.
- Reduce Risk – As you know, we spend a lot of our time measuring and understanding what kind of investors you are, evaluating the risk you can tolerate and your investment time horizons. We made many of these assessments BEFORE the market capitulations, preparing for moments like these, and if your emotions become overwhelming, we can always discuss dialing back your risk.
- Markets Are More Proactive – The markets tend to be more proactive than reactive. Many times, although not always, it is forward thinking especially on things it sees. For example, when the Fed announced the .50% rate increase, the market was up for the day. Why? Because, it already “anticipated” and “priced in” that rates were going up. You may see the markets begin to grow again, when the “noise” in the media is at its highest volume.
- Peak and Trough Compression – Prior to the announcement on June 15th of the Fed rate increase, the Friday and Monday prior had total Dow Index declines of 900 and 800 points consecutively. Since the announcement there has been more compression between the peaks and troughs. What does this mean? It is too early to tell, but something we are watching.
- Prepare for the Worst, Hope for the Best – When times are good, we tend to spend more frivolously (we deserve it, right?). Review your expenses and determine if there are areas you can cut and be more disciplined. That $6 per day latte habit, equates to $150 per month that you could pay down debt, save, or invest.
With two quarters left before 2022 is history, there are plenty of opportunities in the marketplace and more to come as the Fed continues with rate increases. We are at a tipping point, and inflation will take time to tame. Consumers are starting to get fed up with the price increases in goods and services. Thus far, companies have been able to pass those additional costs onto their customers. However, customers always vote with “dollars” and likely will not take many more price increases. Should costs continue to climb forcing consumers to become more price sensitive, and corporate profit margins compress, this may be a sign we are not be out of the woods yet – there may be more “fireworks” to come.
Feel free to reach out to us if you would like to discuss your situation in greater detail. While we have no control over the markets, economy, or government, nor their directions, we are committed to help you, your family, and your finances develop the right plan of action to strive towards your goals. We value you and your business, and we promise, we will get through this as always, together!
Pursuing Wealth, Wisdom, & Well-Being Together,
Kevin J. Wilkison
Please do not send any trading or transaction instructions through this email as they will not be executed. If you need to place a trade, please contact our office directly. Kevin Wilkison is an administrative assistant to Todd Martin who offers securities and investment advisory services through Royal Alliance Associates, Inc. (RAA) member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. Legacy Wealth Alliance is located at 8950 South 52nd Street, Ste 204 Tempe, AZ 85284.
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