by Richard Cull
July Market Recap & Commentary
July was another solid month for investments. The trend for the seven months this year has been quietly higher, with large technology stocks leading the way. The month of July thankfully saw non-tech and smaller stocks share in the rally.
The summer months are traditionally quiet, which investors define as lack of market moving economic data. Across our decades of experience, we have found this to be true in theory and reality. Most people take vacations to coincide with their children’s summer break and so trading volume is lower. Government officials also take breaks leading to fewer meetings (example: Fed Reserve) and public appearances. The famous investment adage, “Sell in May and go away” is often thrown around by those headed out for vacation which is apt for the dearth of news but is not a viable strategy for investors seeking long-term returns.
As has been the case for the past few months, the only real events during the month were a Federal Reserve meeting and the onset of quarterly earnings releases. The Fed raised rates by a quarter of a percentage point in late July and gave mixed signals about their future intentions. Remember, the Fed has two goals…keep inflation low and people employed. During the COVID shutdowns, inflation and unemployment spiked leading to the Fed’s knee jerk reaction of cutting rates to ZERO (easy money policy) and leaving them there until their description of “transitory” turned into “persistent.” Since then (March 2022) the Fed has raised interest rates at an unprecedented pace to north of 5%, the highest level since 2001.
As investors, we much prefer to focus on fundamentals including consumer sentiment, consumer spending and corporate profitability. The reason we devote space to the boring, old Fed is that their actions have a direct impact on these fundamentals…over time. Economic theory and past experience summarized in another Wall Street adage…”Don’t fight the Fed” means our economy and our investment markets recede when interest rates are rising. In a nutshell, this has been top-of-mind of every economist and portfolio manager since March 2022. For the ensuing eight months, investments declined meaningfully only to see a near full rebound over these last eight months. Investment adages are great sound bites and are generally based on empirical experience…but are tactically vague and may lead to strategic errors (such as selling based on the calendar). As fiduciaries we are obviously aware of, and mindful of the presiding investment mindset but remain diligently focused on the fundamentals and our disciplined approach to long-term wealth creation for our clients.
The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them. The following graphic shows the risk of various asset classes as measured on a scale of 1-99 (1 being the most conservative and 99 being the most aggressive) as of the date above.
We start with a Risk Number, a measurable way to pinpoint how much risk you want, need, and already have. Then, your wealth advisor will optimally allocate our investments to help you reach your financial goals. Along the way, you will receive transparency of information, seamless proactive service and the trust and accountability you need to stay on track. All of this will lead to your personal comprehensive investment strategy that is powerful, disciplined, responsive.
Centric’s Market Assumption Disclosures: This information is not intended as a recommendation to invest in any particular asset class or strategy or product or as a promise of future performance. Note that these asset class assumptions are passive, and do not consider the impact of active management. All estimates in this document are in US dollar terms unless noted otherwise. Given the complex risk-reward trade-offs involved, we advise clients to rely on their own judgment as well as quantitative optimization approaches in setting strategic allocations to all the asset classes and strategies. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. If the reader chooses to rely on the information, it is at its own risk. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. The outputs of the assumptions are provided for illustration purposes only and are subject to significant limitations. “Expected” return estimates are subject to uncertainty and error. Expected returns for each asset class can be conditional on economic scenarios; in the event a particular scenario comes to pass, actual returns could be significantly higher or lower than forecasted. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making an investment decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact future returns. Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss.
Index Disclosures: Index returns are for illustrative purposes only and do not represent any actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
Riskalyze Disclosure: The Risk Number® is a proprietary scaled index developed by Riskalyze to reflect risk for both advisors and their clients. The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them.
Shaped like a speed limit sign, the Risk Number gives advisors and investors a common language to use when setting expectations, recognizing risk and making portfolio selections. Just like driving faster increases hazards, a higher Risk Number equates with higher levels of risk.
General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks.