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Pacific Wealth Management Market Comment (May '22)

Investing Insights

  • Stocks and bonds have simultaneously declined this year as the U. S. Federal Reserve Bank is now actively unwinding its unprecedented monetary and fiscal stimulus response to the pandemic.
  • Though strong employment and solid balance sheets for both American consumers and corporations should enable our economy to effectively weather the further slowing in our growth, we expect more volatility in the months ahead.
  • Our client portfolios are defensively positioned with underweight stocks, underweight bonds, and overweight cash allocations.
  • Our wealth preservation discipline is built to reduce risk in today’s challenging markets while participating in the long-term growth of the global economy.

The first four months of 2022 have been challenging for most investors as stocks and bonds have simultaneously declined this year.  The U. S. Federal Reserve Bank is now actively unwinding its unprecedented monetary and fiscal stimulus response to the pandemic.  COVID-19’s impact on our lifestyles, along with $Trillions of stimulus, has precipitated the highest inflation we have seen in 40 years.    

Financial markets that experience periods of decline are a historical reality for all long-term investors.   When markets deliver above-average returns, like those we enjoyed in 2019, 2020, and 2021, the probability of negative returns is elevated in a year when our central bank is “normalizing” interest rates.

Today’s financial markets are experiencing much noise and uncertainty.  In addition to Wall Street’s primary concerns surrounding inflation and interest rate policy, the war in Ukraine continues to evolve and generate daily doses of disturbing news.  The western world’s increasing commitment to provide effective military hardware, combined with the impressive willingness of the Ukrainians to fight aggressively, increase the likelihood of an ultimate stalemate and potential ceasefire agreement. That outcome, however, does not look imminent. We now expect the war to continue for an extended period of time.

Markets initially reacted positively to Jerome Powell’s comments on May 4th when he made the expected announcement of a .50% hike in our Fed Funds rate. Powell’s transparency assuaged some of the uncertainty around the central bank’s future interest rate intentions. He announced this week’s hike would be followed by 2 additional .50% increases in June and July. Still, we expect more volatility in the months ahead.

As the pace of U. S. economic growth decelerates, the overall U. S. economy remains in decent financial health.  Strong employment and solid balance sheets for both American consumers and corporations should enable our economy to effectively weather the further slowing in our economy. We anticipated this year’s volatility and began reducing risk in 2021 and further in early ‘22.   Our client portfolios are defensively positioned with underweight stocks, underweight bonds, and overweight cash allocations.  Our wealth preservation discipline is built to reduce risk in today’s challenging markets while participating effectively in the long-term growth of the global economy.

We are here to answer any questions or concerns regarding your investments or the news of the day. Our entire Pacific Wealth Management team looks forward to speaking with you again soon.  


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