The Quarterly Brief Newsletter

2022 Q2 Quarterly Market Perspectives

What Can We Expect for the Markets and the Economy?

By Kieran Osborne, MBus, CFA? Partner and Chief Investment Officer

Fed Raises Rates, Markets React Positively

As was widely expected, the Fed announced a 50bps increase to the fed funds rate, bringing the target range to 0.75% to 1.00%. The Fed also announced that its Quantitative Tightening (QT) balance sheet reduction program would start at the beginning of June. The most notable takeaway may have come at the subsequent press conference, where Fed Chair Powell pushed back on the notion of larger interest rate increases, saying that a 75bps hike was not under active consideration. The stock market reacted positively to this news and rallied through the back half of the trading session, with the S&P 500 ending up +3.0% on Wednesday. Bond yields also fell (bond prices rose) on the news, with the benchmark 10-year Treasury yield falling to 2.91% after trading as high as 3.00% ahead of the announcement.

Market Update

The start of 2022 has been marked by a distinct uptick in volatility. Concerns about inflation, rising interest rates, Fed policy, and geopolitical tensions on the back of Russia's invasion of Ukraine have dominated headlines and contributed to investor uncertainties. While public stocks and bonds have come under pressure, select income-oriented strategies have performed well, helping to offset some of the broad market volatility. We've also witnessed diverging performance across stock sectors. For instance, U.S. Value stocks were a bright spot in Q1, returning +1.0% while U.S. Growth stocks were down -10.3%.?

This divergence in performance across asset classes underscores the importance of well-diversified investment portfolios and provides for enhanced rebalancing opportunities. Our diversified portfolios have dedicated allocations to Value stocks, while our disciplined approach to rebalancing forces us to "buy low, sell high;" we had been trimming U.S. Growth stock exposures towards the end of 2021 based on relative performance at the time.?

Our thoughts go out to all those affected by the devastating conflict in Ukraine and we hope a resolution is found shortly. Mission Wealth is actively supporting charitable organizations helping with the refugee crisis. In terms of longer-term market implications, conflicts and geopolitical events have historically not had a lasting impact.?

At the same time, consensus estimates for S&P 500 earnings have increased so far this year and (as of writing) of all the S&P 500 companies that have thus far reported, approximately 80% have surpassed earnings expectations. We're also seeing an uptick in buyback authorizations, which are running 22% above last year's record pace and may provide an increased source of demand for stocks moving forward.?

The Economy

Consumer spending and the economy continues to be underpinned by an incredibly healthy consumer and very strong labor market. The ratio of household net worth to disposable income is at a record high and U.S. household’s cash now exceeds debt for the first time in three decades. The strong labor market has led to income outpacing inflation, further supporting the consumer and economy.?

As a result, above-trend economic growth – supported by strong consumer spending and industrial production – is expected over the near-term before transitioning back towards long-term trend growth by 2024.?Inflation remains high and we may be entering a period of elevated – but falling – inflation. We believe inflation may have peaked in March/April and is likely to decrease, though remain above the Fed’s longer-term target of 2% for the foreseeable future. We are already seeing supply chain improvements as logistical congestions come off peak levels.?

This economic backdrop of elevated inflation, above trend economic growth and the strong labor market increased expectations for Fed funds rate increases, with the Fed indicating via its most recent "dot plot" economic projections in March that a total of seven 25bps increases are likely this year, inclusive of the three that have already occurred with today's announcement.??

Outlook & Positioning

We are more constructive for the outlook for both stock and bond returns from current levels. Consistent with history, stocks and bonds have both struggled to begin this year in a "high and rising" inflation environment. On the other hand, both stocks and bonds have historically done very well in "high and falling" inflationary environments, which we believe we are entering.

We remain constructive for the long-term outlook for stocks, particularly from current levels. Historically, when investor sentiment was similarly low subsequent stock market returns were very strong. Indeed, the best time to invest in stocks often comes at a time when it feels most uncomfortable to do so. Market corrections have also historically offered a very attractive entry point.?

We anticipate bond yields may move higher from current levels as the Fed raises rates. However, we think the upward movement will occur primarily at the front end of the curve (3-month to 12-month yields) whereas rates in the five-year plus zone are expected to stay range bound. As such, we believe much of the pain at the longer end of the curve may be behind us. We have positioned our fixed income allocations accordingly and anticipate a coupon-clipping environment for many core fixed income exposures. Select income strategies may do particularly well in an elevated inflationary environment and as the Fed raises rates.?

Ultimately, we believe our portfolios are well-positioned to continue to meet the long-term financial goals of our clients.?

For all this and more, please download our quarterly market perspectives.?

Estate Planning for Graduates

By Andrew Kulha, Director of Estate Strategy

Three Documents Your High School Graduate Needs

It’s an exciting time for your high school senior. They’re going to Prom, finishing up their last exams, and graduating from high school. This fall, they’ll be off to college. Just as they have a checklist of things they’ll need for classes and dorms, there are three important items that you’ll need for your senior as they turn 18 and leave the house. They are a Financial Power of Attorney, Medical Power of Attorney (referred to as an Advanced Directive in some states), and a HIPAA Waiver.

Why do you need these documents?

Now that your child is 18, they are considered an adult in the eyes of the law. You continue to have a good deal of influence in their decisions, but when it comes to making medical or financial decisions for them, you no longer legally can. In case your young adult is in a situation where you need to make a decision for them, you may find yourself unable to. The situation can become even more complex when your young adult attends college in a different state than you, due to varying state laws.

What is a Financial Power of Attorney, a Medial Power of Attorney, and a HIPAA Waiver?

Each document gives you access to make decisions over a certain aspect of your young adult’s life. A Financial Power of Attorney grants you the authority to make financial decisions for your young adult, including opening and closing bank accounts, facilitating bill payments, and accessing digital assets. A Medical Power of Attorney gives you the authority to make medical decisions on your young adult’s behalf. A HIPAA Waiver grants you the ability to access your young adult’s medical files and communicate with their insurance provider.

How do I get these documents in place?

If you’re interested in having documents in place to facilitate your ability to make decisions for your young adult in the unlikely case that something happens to them, you have several resources to turn to. The first option would be to consult with your local estate planning attorney. They will be able to draft documents for your young adult to sign that name you as their agent. There are also several different services that offer these documents online – in some states, you can find free resources, and in others, you may have to pay a small fee. Some schools may also have low cost options available to you and your young adult. In addition, many schools have specific forms that you can fill out that will grant you access to your young adult’s grades and other academic information – which is also protected information once they turn 18.

This is an exciting time in yours and your child’s life. Here at Mission Wealth, we want to be sure that the only concern you have is whether they’ll make it to their 8 AM biology lab class on time. If you have any questions, don’t hesitate to reach out to your advisor to help you get the right documents in place.

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