Update on Current Market Conditions

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Equity markets have rallied since we last shared commentary with you on June 20th with the S&P 500 increasing 9.2% in the month of July. Investors are asking the question of whether this is a “bear market rally” that will return to its downward trend in the near future, or is it part of a sustained recovery that will continue through the end of the year. Evaluating current economic fundamentals, our Investment Committee sees mixed data.

From our perspective, there is still a high degree of uncertainty which will continue to drive market volatility through the end of 2022. U.S. GDP contracted by 0.9% in the second quarter, its second consecutive quarterly contraction in 2022. As economists debate whether we have entered a recession, we are paying close attention to several key factors:

  • Inflation remains elevated. There are signs that it is beginning to peak, particularly within supply chains and energy prices which should provide a reprieve to both consumer wallets and businesses coping with elevated transportation costs.
  • The Federal Reserve is projected to raise interest rates by another 1% – 1.25% before the end of 2022, bringing interest rates to 3.5%. Easing inflationary pressure may pave the way for less aggressive policy, which would be welcomed by markets.
  • The labor market remains healthy, with the July report showing over 500,000 jobs added during the month as unemployment ticked down to 3.5%. As the demand for labor remains elevated, so will wage pressure which should remain supportive of demand for goods and services.
  • The geopolitical environment remains highly uncertain as Russia’s invasion of Ukraine continues and recent headlines focused on a U.S. diplomatic visit to Taiwan.
  • Equity market valuations have retracted toward their 25-year averages. While this does not mean equities are cheap, our long-term return outlook has improved.

As of this writing, the S&P 500 continues to recover from its lows earlier this year of (-20%). We expect volatility to continue through the end of 2022 and into 2023 particularly as we approach mid-term elections in the fourth quarter. We have used the recent rally as an opportunity to review cash positions providing a margin of safety for upcoming expenditures, and we will continue to navigate the market looking for opportunities to deploy cash at attractive prices. Whether this is a bear-market rally or part of a sustained market recovery, we remain steadfast in our long-term objectives.

Since the 1920s, annual market returns have been positive 74% of the time. While we cannot know what direction the markets will head over the coming months, history suggests that the risk to investors is when we make decisions based on near-term market volatility. Our Investment Committee will continue to manage our portfolios in accordance with our clients’ long-term financial goals as we have found that provides the highest probability of achieving their objectives.

Disclaimers:

The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein. Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements. The information presented herein is for informational purposes only and is not intended as an offer to sell or the solicitation of an offer to purchase a security.

Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put. The projections or other information generated by ACG regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Judgments and approximations are a necessary and integral part of constructing projected returns. Any estimate of what could have been an investment strategy’s performance is likely to differ from what the strategy would actually have yielded had it been in existence during the relevant period. The source and use of data and the arithmetic operations used for calculating projected returns may be incorrect, inappropriate, flawed or otherwise deficient.

Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees. This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Gryphon Financial Partners shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This was created for informational purposes only. Gryphon Financial Partners, LLC is an Investment Adviser.

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