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Our Conservative Stance Helped

After a solid July, August was a rough ride for the markets. The S&P 500 dropped 4.24%, and the Nasdaq was down 4.64%. The Bond index fund AGG also lost 3.23%, so it was another month where stocks and bonds lost simultaneously, which is unusual.

As we said in our last market commentary, we added some positions to our portfolio that make money when the stock market goes down (Inverses) in August. We did not load up our entire portfolio into those types of investments because if we were wrong and the market shot up, we would lose big. Our goal was to be roughly neutral. That helped us to avoid the significant losses in August that the market experienced.

We had losses in August, but they were much smaller than the market experienced. Please review your own statements to see your individual performance and give us a call if you’d like to discuss it further.


Could We See a Recovery Before Year End?  

One reason we didn’t have a profit in August is because we have started selling portions of our inverses and now buying the S&P 500 again. We are cautiously optimistic that we’ll have a bounce in the short term, and we intend to ride it up if we can. If we see signs that a rally will not occur, we’ll move back to neutral and sell stocks and buy more inverses, but it is our hope the market can recover from these levels into year-end.

Historically, there is a rally into the midterm election when a president is in the second year of his first term. Some would say there is a lot of “window dressing” to stimulate the economy, so the election goes well for the party currently in power.

In our opinion, the recent student loan forgiveness and student loan payment delays are both examples of this. While past performance cannot predict future performance, if you’d like more information about how politics have matched up with the stock market historically, this report may be interesting to you:  https://www.yardeni.com/pub/stmktprescycle.pdf


Stock Market Index


Importance of Inflation and Oil

This month’s most important data point is the inflation CPI (Consumer Price Index) report on September 13th at 8:30 am. If the inflation number comes in lower than last month, that may cause a robust rally, even if it’s short-term. Because the cost of Oil has dropped from a peak of $120 per barrel down for three straight months to $86 per barrel currently, that 28% decline in prices could potentially help make the latest inflation data still bad but less bad than it was previously, which the market may view as a positive.

Remember, the stock market typically looks 6 months into the future when analyzing current stock values. Hence, an incremental improvement in the right direction from the inflation numbers is a big win. The last time we had runaway inflation was in the 1980s. The Federal Reserve chairman at the time, Paul Volcker, used Fed policy tools to reduce inflation. As a result, the stock market responded positively, erased all losses within four months, and then had a great run-up for years.

We’re hopeful the same thing will happen now in 2022-2023 as the Fed is aggressively using its tools to reduce inflation. However, in the short term, raising interest rates does slow down the economy, so we’ll keep a close eye on GDP, employment, and corporate earnings reports.


Daily Portfolio Monitoring

As you know, we have many tools in our toolbox, including the ability to purchase investments that profit when the stock market goes down, which we currently use with a small portion of our portfolios. This is called hedging. There is still a chance the stock market will take another trip down before it ultimately heads higher again. Our ultimate goal is to make money, so we’re using what we believe to be all the appropriate tools in our toolbox to potentially accomplish that goal. This is why we manage our active portfolios daily.


Future Market Outlook

Anything is possible in the short term, but we believe that by year-end, stocks will rebound for many reasons. Yesterday, the FDA authorized a new Omicron-specific vaccine booster that may lead people to spend and vacation more.

There are other factors that make us cautiously optimistic, including low unemployment, the Coronavirus-fueled shutdowns and restrictions being reduced worldwide (currently there are lockdowns in parts of China), inflation will peak and then drop, providing lower prices, consistent housing market prices despite high-interest rates, and consumer spending from Millennials who have hit their peak spending years.


We Are Here to Help

We’d love to have a review meeting with you to discuss investments, retirement planning, college planning for kids or grandkids, tax preparation, health insurance, including Medicare supplemental and prescription drug plans, and a variety of other financial planning topics. Please get in touch with our office at (586) 226-2100 to schedule a meeting today!

Please contact us immediately if you’ve had any changes to your income, job status, marriage status, 401K options, address, or any other financial changes. We hope you and your family have a fantastic, safe, and healthy start to the fall!

Kindest regards,

Bob, Ken, Jim, Zach, and James


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Notes & Disclaimer: Stock market indices, like the S&P 500 Index, are unmanaged groups of securities considered to be representative of the stock market in general or subsets of the market, and their performance is not reflective of the performance of any specific investment. Investments cannot be made directly into an index. Historical returns data are calculated using data provided by sources deemed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, or correctness. This information is provided “AS IS” without any warranty of any kind. All historical returns data should be considered hypothetical. Past performance is no guarantee of future results.

This communication is only intended for recipients who reside in states where our agents are licensed to sell these products. Investment advisory services are offered through Summit Financial Consulting, LLC, an SEC registered investment advisor. Registration does not imply a certain level of skill or training. Summit Financial Consulting Investment Advisor Representatives do not render tax, legal, or accounting advice. Insurance products and services are offered through Summit Financial Consulting, LLC. Note: Please update Summit Financial Consulting, LLC, if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy. All guarantees are subject to the claims paying ability of the issuing insurance company. Past performance cannot predict future performance. It is not possible to invest directly in an index. The Sherman Group, LLC is not associated with Summit Financial Consulting, LLC in any way, other than a research sharing partnership. Back testing is more heavily scrutinized than any other type of investment analysis because it can be updated to take advantage of past data. The algorithms and trading signals that we receive from the Sherman Group, LLC were created using back testing with the goal of creating a sustainable research process. We have reviewed data from the entire 20 year period which was mostly back tested, and have also personally reviewed the live data for the past 5 years and feel comfortable with it, but we encourage you to meet with us and ask questions so you are fully informed on what we plan to do with your investment assets at TD Ameritrade. It is important to look at fees, taxable repercussions, and trading frequency when looking at a rate of return number. There is no perfect system or research feed, and Sherman Group, LLC has had both longer term and short-term periods where they lost money. Investing involves risk, and these portfolios are no exception.