3Q Market Commentary Pic

 

The passing of the resilient and remarkably dutiful Queen Elizabeth II represented the end of a long era.  Few Britons have lived under another monarch.  The affection for the Queen was apparent from the British response, including a nearly five-mile “queue” of citizens waiting to pay their respects.  Similarly, tens of millions in the United States were drawn to the funeral coverage.  We’ve been through a lot with our friends across the pond.  We also respect people who are rigidly resolute in keeping the commitments they make.  

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4th of July 3

 

The upcoming 4th of July holiday is a welcome mid-year respite.  For investors, the “Rapidly Shifting Investment Landscape” we discussed in our May intra-quarter commentary is now a much-changed investment landscape.  Not only did stocks decline for nine consecutive weeks, bonds had the worst year ever in just half a year’s time.  The rare occurrence of stocks and bonds declining in tandem was a one-two punch, particularly for investors who had capitulated to the idea that rates would remain low forever and thus owned intermediate and long duration bonds.

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IQbrief main

Our normal pattern is to issue a quarterly market commentary. In periods of heightened market volatility, however, we strive to communicate more frequently. For instance, amidst the onset of the pandemic from March 4th to April 2nd of 2020, we issued four market commentaries.

Given the equity market’s declines and the bond market’s historic losses, we want to offer some perspectives regarding the financial markets’ shifting landscape. Suffice it to say, while we seem to have moved beyond the health-related confines of the pandemic, higher interest rates and Russia’s war with Ukraine have quickly squashed investors’ appetite for risk assets. Consistent with our approach for more than two decades, we won’t pretend to know how markets will fare in the near-term. We will, however, reiterate our view that when asset prices go lower, the risks to investors are reduced not increased. Consequently, for investors with a long-term time horizon, we are more likely to buy versus sell stocks amidst the current volatility.

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Ukraine

 

The Ukrainians’ incredible fortitude in the face of Russia’s invasion and merciless tactics has inspired the world. NATO has a renewed purpose, economic sanctions have been swift and arguably more severe than imagined just a few months ago, and the corporate exit from Russia has helped lift the information veil. After all, it’s one thing for an uninformed Russian citizen to make note of the volatility of the Russian Ruble, but quite another when the doors of prominent global retail outlets are literally closed overnight.

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Depositphotos 28403469 S 

After an incredibly resilient 2020, most stock market prognosticators expected only modest gains in 2021. The conventional wisdom was that markets had raced ahead in anticipation of the 2021 COVID-19 earnings recovery thus already “pricing in” the good news.   The extent of the 2021 earnings recovery, however, has far exceeded even the most optimistic forecasts.  For instance, this time last year the consensus Wall Street forecast for 2021 S&P 500 earnings was $164.  While the Omicron surge could negatively affect fourth quarter reports, the current 2021 S&P 500 earnings estimate is for $207, a whopping 26% better than expected and 20% ahead of pre-pandemic 2019 earnings. (Source:  FactSet)  We’ve often remarked over the years how the consensus view is regularly the wrong one.  Yet the magnitude of this miss has surprised even the long-term skeptics of Wall Street forecasting.

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