Dear Client,

We hope this finds you and your families well! As the summer kicks off, we wanted to reach out with a mid-year greeting and share some thoughts on the current environment and the markets. Needless to say, the first half of 2022 has presented its share of challenges. More than one hundred days have passed since the invasion of Ukraine with no immediate end in sight, and like me, I’m sure you know of more than a few cases of Covid among your friends and family.

On the economic front, it has been no different. Prices on consumer goods have increased at a 40-year record pace, and average gas prices have surpassed $5 per gallon across the country. In some ways, the rise in prices can be viewed as the unintended consequence of fiscal and monetary policies taken at the height of the pandemic. In 2020, the Federal Reserve cut rates to near zero, and the federal government distributed trillions of dollars in stimulus in an effort to keep the economy from a recession. As lockdowns were lifted in 2021, a strong recovery in consumer demand coupled with protracted labor and supply shortages created conditions ripe for price inflation. The war in Ukraine and global sanctions on Russian oil have only served to exacerbate this inflationary trend. The Federal Reserve is now reversing course and raising interest rates to combat inflation and expects to continue lifting rates through 2023.

Not surprisingly, the market has reacted negatively to these conditions. As of the end of May, the Dow was down 9.2%, the S&P 500 down 13.3%, and the Nasdaq Composite down 22.8%. Bonds have provided little protection; the iShares U.S. Aggregate Bond Index has fallen by 8.9% so far this year. Our investment portfolios, without exception, have also been affected by these macro trends.

While it’s natural to feel anxious during market downturns, we believe clients have good reason to feel assured. Price fluctuations are a natural condition of investing. Economies and the markets are inherently cyclical and will be marked by periods of both expansion and contraction. Since World War II, there have been 28 market corrections (a decline of 10-20%) and 14 bear markets (declines greater than 20%). Corrections have occurred once every two years and lasted on average four months. Bear markets have occurred once every five years and lasted on average 14-16 months. Despite this, the stock market has returned an annualized rate of 11.1% and a cumulative rate of 310,499% during this period*. At that rate of return, an investment of $1,000 would be worth $3.1 million today.

Achieving a return of this magnitude requires patience during periods of uncertainty. Many investors fall short by failing to persevere through the investment process. Market turbulence breeds fear, and the temptation to find short-term fixes can be all too alluring. We urge our clients not to be driven by their fears and instead remain steadfast and continue setting their sights on long-term results.

At the same time, investing is not a purely passive exercise, and market downturns can create favorable opportunities for investors. Our fund managers have taken advantage of the decline by adding leading businesses to their portfolios at significant markdowns. We are also encouraging clients with long-term funds held in cash or fixed income to consider the present market an attractive entry point for investing those funds in equities. If you have pre-tax retirement savings, it could also be a good time to convert them to a Roth IRA. While it may take time to reflect in account performance, these actions plant seeds of growth that will sprout in the form of enhanced returns. As Warren Buffett famously stated, investors would be wise to be “fearful when others are greedy, and greedy when others are fearful.”

We want to assure you that we remain committed to executing on our strategy of investing in strongly financed, well-managed “all-weather” companies that have proven their ability to compound capital over multiple market cycles. We continue to believe that the stock market is the best hedge against inflation, and that keeping investable funds in cash only guarantees erosion of principal. We encourage you to maintain a rational, historically informed perspective on the markets and focus on your long-term objectives.

If you have questions or concerns about your account performance or would like to review your financial plan, please do not hesitate to contact us. As always, we are grateful for your partnership and trust.

JSO Partners Team

*Annualized and cumulative returns are based on the S&P500 performance from 9/1/1945 to 5/31/2022 and assumes the reinvestment of all dividends.

Contact Us
(215) 283-3131
team@jsopartners.com