2nd Quarter 2022 Client Letter

Inflation and the Fed’s Response; Too Little, Maybe Too Late?

I hope you and your family members are safe, healthy and enjoying the summer. Many are traveling both domestically and finally internationally. Well, as per my previous quarter letter I mentioned that volatility was anticipated and this quarter volatility was heightened. The type of volatility cannot be predicted and this past quarter investor reaction still appear to be an overreaction.

The markets have not had two negative quarters in many years. We look to July GDP data to see if the economy enters a recession. The definition of recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. The top Google economic search in 2022 has been recession. Many do not understand that recessions come in many forms;

• Balance sheet recession (e.g. Global recession of 2008/09 after credit crunch).
• Supply-side shock (1970s recession due to higher oil prices).

There are many factors that can cause an economic slowdown include;

• Rising unemployment.
• Rises in bankruptcies, defaults, or foreclosures.
• Lower consumer spending and consumer confidence.
• Falling asset prices, including the cost of homes and dips in the stock market.

The Federal Reserve can either let inflation damage the economy or get more aggressive with monetary policy. The FED increased interest rates so far this year to a current Fed Funds rate 1.50-1.75%. The July 26th and September 20th meetings will allow the FED to make further adjustments. This should help to ease inflation. We think it is too early to tell whether the FED would consider changing policy.

Currently, we believe the challenge for investors is that, so far, expectations for corporate earnings have not been terribly impacted, and actual earnings, with some expections were strong in q1. This could mean either the companies will weather this slowdown, or we have yet to see the worst impacts on earnings from inflation and higher interest rates, we are not yet at a point where “bad news is good news” and we can count on the Fed to relent.

We believe maintaining a focus on long-term plans is critical in these market environments. Impatient investors who panic, could lose more money to inflation through lost purchasing power if they step out of the market or deviate too far from their long-term plans.

I believe every solid relationship should center on open communication. You have several options to access the information you need to know about your portfolio, my firm, Raymond James and the financial markets. In addition to our in-person meetings and one-on-one calls, we'll also communicate with you through other channels, such as our website, newsletters and social media. You have already been receiving regular updates and emails from me. These communications are designed to provide you with insight into the ever-evolving financial markets and help build the confidence that comes from working with an experienced advisory team. If you haven't already done so, I encourage you to go to my website to learn more about my firm and access some of the recent research and articles available to you. I also utilize social media channels such as Linkedln. If you already have an account on Linkedln consider following me. These channels provide an excellent way for me to keep you up to date with relevant, timely news. Please let me know how you prefer to receive important communications and how frequently. We'll do our best to deliver. Guiding you toward financial independence is a collaborative process, and I hope you feel comfortable reaching out to me whenever you have questions, concerns or even new ideas to help me better serve you.

Regards,

Elliot Weissmark, CFP®, CPFA
Senior Vice President, Investments

Any opinion are those of Elliot Weissmark, CFP @, CPFA and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.