Hello Clients,
We want touch base in light of the recent market volatility. We appreciate these moves in markets can be unsettling and naturally stir up several questions:
- What is driving market volatility?
- How is my portfolio positioned for these events?
- What, if anything, should we do about it?
Our investment process sources its conviction from our history of emphasizing long-term outcomes, focusing on your portfolio objectives in a way that aligns with your unique goals, and allowing our outlook to evolve as circumstances change. In short, we seek to avoid emotional reactions that don’t align with your financial plan.
Below, we have provided some additional perspective on recent volatility and the markets more broadly. In addition, we offer a host of other resources that should help provide insight to the current investing landscape (including a short video recently posted by our team).
Our team is available to connect if you have additional questions or would like to discuss your financial plan and portfolio.
Recent Market Drivers
We entered 2022 highlighting four key potential drivers of returns – From Pandemic to Endemic, Policy Maker Tightrope, Inflation, and Volatility Ahead. While these drivers have unfolded in a more pronounced manner than anticipated, we believe these factors will continue to influence markets.
As we wrote in our most recent April Market Commentary, the feedback loop of high inflation leading to higher interest rates has had a material impact across markets. Futures markets are currently pricing in as many as ten (10) rate hikes in 2022, potentially resulting in a Fed Funds rate of 3.0 – 3.25 percent by December (substantially higher than the 0.0 – 0.25 percent range in place at the beginning of the year). If predictions become reality, this outcome would mark the most hawkish move by the Fed since 1994, when then Fed chair Alan Greenspan increased rates by 3.0 percent over the course of a year.
The movement to meaningfully higher interest rates has materially affected bonds with the Bloomberg Aggregate Bond Index posting its worst four-month return (-9.5 percent through the end of April) since the index began in 1976. Additionally, higher interest rates have weighed on highly valued stocks, such as those in the technology industry. Sixty-one (61) percent of stocks in the technology-heavy NASDAQ are down 20 percent or more in 2022. Of note, 29 percent of these stocks are down 60 percent or more over the same period(1). Finally, rising interest rates in the U.S. have strengthened the U.S. dollar. A robust dollar, coupled with more highly elevated geopolitical risks, has weighed on foreign investments.
Positioning & Action
We recognize no investor has the power of prediction. Therefore, to navigate heightened crosscurrents in markets, investors are best served by focusing on those facts and insights that tip the scale toward what is most likely and building a disciplined process that is repeatable to capture and use this information.
Entering 2022, across our risk models, we increased exposures to diversified real assets, assets that have historically provided a greater hedge against inflation such as infrastructure, global real estate, commodities, natural resources, and TIPS. Additionally, we added to positions in dynamic bonds, unconstrained fixed income mutual funds that provide managers the flexibility to deviate from benchmarks in order to navigate volatile interest rate and dynamic credit markets, while maintaining a cautious risk posture. Finally, we broaden diversification given recent trends of owning more growth at the expense of value stocks. By and large, these changes have benefited relative returns in 2022. Despite these preparations, returns have been underwhelming year-to-date as many asset classes have sold off in unison. Nonetheless, we believe these portfolio positionings remain well suited and appropriate for what may continue to be a rocky road ahead.
Our Investment Committee continues to meet regularly to evaluate opportunities and risks across the investment landscape. While we do not believe any further action is warranted at this moment, we recognize market conditions can evolve quickly and we remain vigilant and steadfast in our investment approach.
-Your Cedar Cove Wealth Partners Team
Footnotes
- Morningstar Direct
Disclosures
Advisory Persons of Thrivent provide advisory services under a practice name or “doing business as” name or may have their own legal business entities. However, advisory services are engaged exclusively through Thrivent Advisor Network, LLC, a registered investment adviser.
The material presented includes information and opinions provided by a party not related to Thrivent Advisor Network. It has been obtained from sources deemed reliable; but no independent verification has been made, nor is its accuracy or completeness guaranteed. The opinions expressed may not necessarily represent those of Thrivent Advisor Network or its affiliates. They are provided solely for information purposes and are not to be construed as solicitations or offers to buy or sell any products, securities or services. They also do not include all fees or expenses that may be incurred by investing in specific products. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. You cannot invest directly in an index. The opinions expressed are subject to change as subsequent conditions vary. Thrivent Advisor Network and its affiliates accept no liability for loss or damage of any kind arising from the use of this information.
Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable.
THRIVENT IS THE MARKETING NAME FOR THRIVENT FINANIAL FOR LUTHERANS. Investment advisory services offered through Thrivent Advisor Network, LLC., a registered investment adviser and a subsidiary of Thrivent.
