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Pacific Wealth Management Market Comment (Sept '22)

Insights

  • The interest rate policy of the Fed will slow the U.S. economy further likely leading to a recession in 2023.
  • Our data-driven discipline led us to initially reduce equity exposure in late ’21, followed by additional reductions in early 2022.
  • We expect more short-term rallies but believe it prudent to remain defensive with our continued bias toward wealth preservation for our clients.
  • Our diversified client portfolios are designed to weather economic slowdowns as well as participate in the long-term growth of the American and global economies.

What a difference a quarter makes.  Early in 2022’s third quarter, financial markets were beginning to rebound from the fast, broad declines stock and bond values experienced in the first half of the year.  Inflation in energy and agricultural commodities had begun to subside while Wall Street expected our U.S. Federal Reserve bank to throttle back on increasing interest rates aggressively. Following Jerome Powell’s hawkish comments at the Jackson Hole summit in late August, stocks have erased the brief early summer bounce-back rally and have now declined below the previous lows reached in mid-June.  

Through the first half of 2022, much of Wall Street remained aggressively invested in the stock market during its decline.  On the contrary, our Proactive Asset Management™ discipline directed our portfolios to a defensive posture within the first quarter.

We believe the Fed’s interest rate policy will slow our economy’s growth further, through year-end and into the first half of 2023. We expect an economic recession in the U.S. in 2023 while markets continue to struggle in the short term and remain choppy.   

*US:SPX: Standard & Poor’s 500 Index

We began reducing stock market risk in client portfolios in ’21 and again in early ’22.  Our data-driven disciplines have precipitated a recent move to lighten allocations toward stocks further to our designated minimums.   We expect more short-term rallies like the one earlier in the summer but believe it prudent to remain defensive with our continued bias toward wealth preservation for our clients.

Financial market volatility is always disconcerting but is also an unfortunate reality for long-term investors. Fortunately, the U.S. economy remains fundamentally strong and capable of weathering the upcoming recession.  Our diversified client portfolios are designed to weather economic slowdowns as well as participate in the long-term growth of the American and global economies. We expect to redeploy our large cash positions sitting in money market funds as opportunities arise.


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