Seamark View

INVESTMENT MARKET OVERVIEW

2nd Quarter, 2022

Prepared by

R. William Blasdale

July, 2022

 

 

 

Here are the indices that we typically review:

                                                                                                                                               2021 %                                                               6-months 2022                                                                                                                        

Russell 1000 (Domestic Large Cap):

26.45

-20.94

         Russell 1000 Large Cap Growth

27.60

-28.07

         Russell 1000 Large Cap Value

                                    25.16

-12.86

Russell 2000 (Domestic Small Cap Stocks):

14.82

 -23.43

          Russell 2000 Growth

2.83

-23.43

          Russell 2000 Value

28.27

-17.31

Russell Mid Cap

22.58

-21.57

          Russell Mid Cap Growth

11.77

-29.54

          Russell Mid Cap Value

28.34

-16.23

MSCI EAFE (International Stocks):

11.26

                               -19.57    

MSCI Emerging Markets:

  8.09

                                -17.63

Fixed Income (Bloomberg Barclay’s US Agg):

  -1.54

                                 -10.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                               

 

 

 

 

 

 

         

There’s really no way to pretty this up:  the 2nd quarter was awful, and the 6-month results are discouraging at best.  All the gains of 2021 have pretty much been wiped out.  As we have discussed before, the Federal Reserve (FED) is moving aggressively to dampen the inflation we are all experiencing in the costs of housing, energy, food, etc. While that is a laudable goal, the tools they have to accomplish the task are “blunt instruments” at best.  All they can do is to raise the cost of borrowing by raising the Federal Funds rate and ceasing to provide liquidity to the bond market (“quantitative tightening”).  The hoped-for effect is that the increased cost of borrowing will decrease the demand for goods and services, which should ease the pressure on prices and dampen inflation.  There are some signs that the housing and automobile markets are already starting to feel these effects.

There are, however, several problems. First and foremost, the FED can overshoot and tip the economy into recession.  While FED Chair Powell says they are hoping to avoid this result, most economists predict that there will be at least a mild recession, and there’s a good chance it might be more severe.  There is also a chance of something called “stagflation,” where the economy is stagnant to down and inflation remains untamed.  Secondly, the war in Ukraine is continuing (in addition to the horrible human toll) to destabilize the world economy. By reducing or cutting off energy supplies to Europe, Russia has succeeded in creating shortages which drive up prices worldwide.  The continuing struggles around the port of Odessa have reduced exports of grain, and prices of foodstuffs have soared.  And, of course, Covid is still lurking out there.  Should there be a resurgence, particularly in China, we could see continued supply chain bottlenecks, shortages of key components, etc.  Altogether, not a particularly rosy picture.

In addition to difficulties in the equity markets, the challenges in the fixed income markets remain.  As a result of the FED tightening, yields on all fixed income vehicles have risen dramatically.  While this has led to all the negative consequences discussed above, on the plus side, one can now receive a decent rate of return on bonds.  Interest rates are hovering around 3% for US Treasury maturities ranging from one to five years (roughly double where they were on January 1st).  The question is: where will rates peak?  The “experts” currently predict somewhere between 3% and 4%, depending on the rate of inflation and how aggressively the FED will continue to tighten.  As you know, we are gradually extending the maturities of our fixed income portfolios to take advantage of these rates, and we will continue to do so as our current short-term investments mature.

This continues to be an extraordinarily difficult, uncertain time for investors worldwide.  There are no quick, easy fixes.  I am, however, reminded once again that the most critical investment decision we all make is our overall asset allocation: how much in cash, how much in bonds, and how much in stocks.  That allocation is driven by your known needs for liquidity and your tolerance for risk.  While there is no “perfect” ratio, Lynne and I have been working closely with you over the years to ensure that your allocation is aligned with your needs and your risk tolerance.  While choppy markets such as these are disconcerting, they do show the wisdom of a reasoned, balanced, conservative approach.

As always, we welcome your questions, concerns, and comments.   And we remain deeply grateful for your continued confidence.

R. William Blasdale

July 7, 2022

 

DISCLOSURES

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This presentation may not be construed as investment advice and does not give investment recommendations. Any opinion included in this report constitutes the judgment of Seamark Financial Services, Inc. (Seamark) as of the date of this report and are subject to change without notice.

Additional information, including management fees and expenses, is provided on Seamark’s Form ADV Part 2. As with any investment strategy, there is potential for profit as well as the possibility of loss.  Seamark does not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable.  The investment return and principal value of an investment will fluctuate so that an investor’s portfolio may be worth more or less than its original cost at any given time.  The underlying holdings of any presented portfolio are not federally or FDIC-insured and are not deposits or obligations of, or guaranteed by, any financial institution. Past performance is not a guarantee of future results.

Presentation is prepared by: Seamark Financial Services, Inc.

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