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Chicago-based financial planning and investment management firm serving clients nationwide

Quarterly newsletter

Spring 2022 | 1st Quarter

After three terrific years of stock market performance, we anticipated rougher sledding in 2022. With stocks running hot in the face of surging inflation and an imminent change in Fed policy, it seemed logical that markets would be choppier this year. The war in Ukraine, subsequent sanctions and a significant spike in both interest rates and energy costs created additional nervousness in Q1, which rocked both stocks and bonds.

At one point in February, the Nasdaq and S&P 500 were down 20% and 13%, respectively. The selloff was fast and furious, reaching oversold levels before snapping back quickly in the month of March. As we’ve discussed over the years, sentiment is a great contrarian indicator. At extreme levels of optimism or pessimism, investors who react based on how they feel run the risk of making expensive mistakes.

As for our outlook, it’s murky. Multi-decade high inflation numbers are forcing the Fed to be more aggressive in raising interest rates at a time when sanctions and the war will likely slow global growth. Since recessions are always bad for stocks, we are hopeful that the Fed can hike rates just enough to quell inflation, but not so much that is leads to recession. We’ll see.

With respect to your portfolio’s performance, the direction of corporate earnings continues to be a huge driver. As of this writing, earnings projections remain positive, and have yet to be revised lower in a material way. We will be listening closely to industry leaders this month and next as they discuss market conditions and the outlook for their businesses.

Lastly, the challenge that higher interest rates pose for traditional fixed income investors represents a secular shift that will have broad implications for portfolio returns this year and beyond. During the past three months, bonds suffered their worst quarterly loss in 40 years (-6%)! We have done a nice job managing that risk. Our investments in private equity real estate and inflation-protected bonds, to name just two examples, have provided a sturdy ballast during this very turbulent period. We will continue to research alternatives that possess bond-like risk without the corresponding inflation or interest rate sensitivity.

As is our practice, Courtney Poffenberger will be reaching out to schedule a planning and portfolio review. We trust you are well and look forward to connecting. In the meantime, stay safe and enjoy the spring!

Paul M. Embree >
President & CEO