Dear Valued Clients,
As we are sure you are aware we are experiencing a significant level of disruption in the capital markets globally. In the U.S. there are several contributing factors stemming from the ongoing impact of the pandemic. These include supply chain issues causing pricing pressure on commodities and finished goods which has led to a high level of inflation on goods and services. Governmental response including stimulus efforts which have created wage pressure further increasing costs is now being addressed by inflation fighting response by cutting back the Federal Reserve Balance Sheet through the reduction of bond purchasing and increasing the Federal Funds interest rate which has the effect of increased borrowing cost for businesses and consumers. While this alone has the effect of straining businesses and consumers, in addition a "Black Swan" event with the aggression of Russia invading Ukraine has created additional global pressures given the disruption of grain exports from Ukraine and the cutoff of energy to Europe from Russia.
Most importantly as investors we need to determine how our monies are allocated, which includes our asset allocation and level of liquidity. Certainly, there are concerns regarding the potential further decline of stocks and bonds and the level of recession we may face in the U.S. and abroad but as in all scenarios it is important to understand the impetus of market disruption and likelihood of its continuance and recovery. In considering the investment approach for each of our clients we focus on their asset allocation and risk tolerance. Throughout history we have seen market declines for periods of time followed by recovery. While the timing of these events is impossible and recognizing that our best interest is served by maintaining a long-term focus, we endeavor to balance market exposure with the ability to withstand the turbulence that forces such as a pandemic or imperialistic act of aggression can create on investment performance.
While we cannot know with certainty what level of market decline we may face there are a number of highly encouraging factors to consider for both the U.S. and International economies. These include a very low level of unemployment, in fact there are two positions available in the U.S. for every unemployed person seeking work. There is still an elevated level of "pent up demand" for travel and for the purchase of goods many of which need to be replaced due to obsolescence and there is still a shortage of housing for those looking to either make an initial home purchase of downsizing.
Behavioral finance studies have demonstrated that we are three times more likely to be concerned about a market decline than to be pleased when we have significantly positive investment performance. Therefore, feelings of angst are a natural response to the present market decline we have seen so far this year. We need to know how you are feeling about your investment structure to determine if any changes should be considered. Please contact us if you would like to discuss your current investment program, as we want to ensure that we have an investment program in place that continues to meet your needs as well as your risk tolerance.