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Q3 Quarterly Letter

Fall is my favorite season.  The weather is often pleasant – not too hot or too cold – and nature greets us through October and November with bursts of color and activity as plants and animals go dormant for the winter.  It’s an enjoyable season because it avoids extremes and each morning is a small, pleasant surprise as I look out my window and see which trees in my neighborhood are turning colors and changing with the season.  But, the weather isn’t always perfect and the season can be punctuated by windy days, rain storms and sometimes an unseasonable snowfall.  Unpredictability is an indelible part of nature, but it’s one that can certainly disturb our enjoyment of it!

Just as we prefer predictability in nature and in the weather, investors generally prefer having some effective foresight about the economy.  Markets don’t usually respond well to uncertainty.  Investors tend to prefer to have reliable estimates about the future, and simply put they like to be able to predict within a tight range what’s likely to happen to the economy over the next year and use that to estimate what might happen to companies’ stock prices.  Markets don’t have this luxury today.  We find ourselves in one of the most unpredictable environments for investors in a long time.  The unknowns investors grapple with include:

  • Will generationally high rates of inflation peak and come down quickly?
  • Has the Federal Reserve committed to tough enough monetary policy and already raised rates at one of the fastest paces ever, and will it be able to reverse course soon?
  • Will Europe be able to secure the energy supplies it needs to see itself through the winter?
  • And, will the global economy be able to take all this stress and not face a meaningful decline?

These are all important questions, and investors are operating in an environment where a confident response to any of them may elude them.  Anything seems possible in the next few months and the markets respond to each new development with significant moves up and down.  As uncomfortable as this uncertainty is, we as investors have to look past the fog and build portfolios on the best information we have.  Much of that information may be encouraging:

  • Many investors forecast a recession for 2023.  We expect that should a recession happen that it will be mild.
    • The unemployment rates remains very low, with employers looking to fill more positions than there are job searchers to fill them.
    • Americans are still well supplied with excess savings from the pandemic era.
    • American consumers also have strong balance sheets, and have very low debt levels entering an era of economic turbulence.
  • The stock market, and the businesses it represents, are well positioned, too
    • This year’s decline in stock prices has brought price to earning ratios to below their 10 year averages.  Stocks have gone from expensive valuations to relative bargains.
    • American businesses as measured by the S&P 500, have been able to maintain high profit margins in the face of high inflation.
  • Inflation may be nearing a turning point
    • Some of the data points that were harbingers of a surge in inflation are now falling.  For example, used car prices have now declined on a year over year basis
    • Other important prices are leveling off, with increases in rents starting to run at a lower pace
    • The Fed’s rate increases have increased mortgage rates to a generational high and may start to put a lid on home prices.

As we move forward through the last few months of 2022, hopefully we’ll start to see a much clearer picture of what the future holds and where the opportunities lie.  Much of this year has been punctuated by major market moves in response to an environment of high uncertainty, and its possible that as we see a clearer picture of inflation, the Fed’s fight against and the prospects for the Global Economy investors will find themselves in more pleasant markets with more predictable days ahead.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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