Dear Client/Prospects/Partners:
To paraphrase from our January letter, 2021 did not disappoint, but 2022 has been downright terrible. Every time we get a few positive days or even a good, solid week in the markets, the wind is taken out of our sails with the continued volatility and downtrodden news of runway inflation, talks of a recession (which are valid) and the rising interest rate environment with has been tough for both equity investors and bondholders. I have mentioned to most of you for a few years now that we are overdue for something like this recent drop, but I do not think any of the experts expected it to be this fast and harsh. Here’s an example of why it’s been so frustrating for many investors and managers alike: Municipal bonds are down -11.6% YTD, REIT’s are down -27%, Preferred stocks are down -17%, the S&P Dividend Aristocrats Index is down -16%, the S&P 500 is down -20.6%, the DJIA is down -16.7% and the Nasdaq 100 is down -28.7%.
Is there any good news, you ask? Well with rising interest rates, CD’s, money market accounts, cash accounts and in general fixed instruments are paying very well. They aren’t to the level of the 1980’s but they are moving that way. The other unseen benefit in all of this is companies that had extraordinarily high valuations have come back to normalcy. This means that there will by buying opportunities with equities now and in the near future. With proper stock selection, we can be prepared to take advantage of this when it does turn around. This week the markets were up almost 7% on Monday and Tuesday. Furthermore, several bear market analysts have changed their tune and said we have bottomed out and they are now bullish, or at least bullish for 3-6 months. This could be the start of better days ahead. We will see how this materializes. We are optimistic but also extremely cautious.
The Federal Reserve has been raising rates at a clip of .75 bps the last several times. Will they do it again on December 14th? That will all depend on inflation numbers that come out before their announcement. It seems whenever Chairman Powell talks, the markets go the wrong way. The European Central Bank followed suit with Mr. Powell during this last raise as they try to combat a global recession. The average 30-year mortgage rate touched 7% last week, which of course is going to impact the housing market and new home builds. The jobs report comes out tomorrow and that should provide us some indication of where the economy stands at as we start the home stretch run for the end of 2022. Hang in there. It has to get better at some point.
Sincerely,
J.B. L’Esperance, ChFC
If you have questions about our strategies or would like to open an account with Barking Sands Capital, please give us a call at 952.500.8854 or 248.687.1400.