Summer 2022 Newsletter

Happy summer! Unfortunately, the noise we’ve all been hearing recently isn’t fireworks celebrating the birth of the greatest nation in the world.

It seems to be the economy coming to a screeching halt. This is in stark contrast to not too long ago, when many were asking if it would ever end OR were educating me on how we’re missing the boat with the {insert internet idea} they’d put their money in. “The more things change, the more they stay the same.” This quote from 1849 is still recognized for a reason…it’s stood the test of time…unlike many of those “can’t miss” things from just 6-12 months ago. 

After recent years of historically high returns for U.S. investors, the tides shifted coming into 2022. The interconnected core drivers of inflation, policy tightening, and geopolitical conflict have driven both stocks and bonds lower together. The S&P 500 index fell by 24% from its January 3rd peak before its recent bounce from the lows.1 The aggregate bond market has dropped over 11% as only select commodity-related areas have appreciated in 2022.1 Our portfolio tilt towards defense has helped client returns greatly year-to-date. 

Before we outline our general roadmap for portfolios going forward below sums up 2022 so far: 

• U.S. stocks just concluded their worst first half of any year since 1970 as the current bear market has been entirely valuation-driven rather than the result of reduced earnings estimates.1 Historically, consensus analyst expectations for earnings have been relatively too slow to drop lower and we expect the second half of this year to usher in notable declines in the outlook for corporate revenue and profit growth. The stock market likely already reflects this dynamic. 

• Over the last 60 years, every time the US Conference Board Leading Indicator recorded 4+ consecutive negative monthly readings we were already in a recession.1 The count so far stands at 3. On July 21st, we will likely get a 4th consecutive negative reading. It is quite possible the economy is already in recession and if so, the key question will be regarding the speed and depth of the current economic contraction. Both domestic and global factors are involved. 

• Interest rates have shot up & delivered an unprecedented decline to fixed income at large but in recent weeks there have been signs of stabilization. The Federal Reserve and other key global central banks have rushed to increase borrowing costs in an effort to pull down demand for both goods and services across the globe. It is the supply side of inflation that is more complex. 

Top German industries could face collapse as a result of cuts in the supplies of Russian natural gas, the country’s top union official warned before crisis talks with Chancellor Olaf Scholz this week.1 The conflict in Ukraine and ongoing restrictive policies in China continue to keep inflation elevated. Western policy has also made it notably difficult for new energy supplies to come online in response to high prices. It is important to note that even in a worse-case scenario surrounding global “supply side” inflation, the U.S. has significant advantage over most of the world. Global investing is most often about relative not absolute. 

As we said in our October letter of last year: “The end of accommodative monetary & fiscal policy amidst rising inflation…is a challenge.” In all honesty, I don’t think we realized how dead on our own statement was. The perfectionist in me wants to scream at myself to do more than we did! However, back in the realm of stable mental health, aka reality, we’re reminded that while hindsight portfolio management is easy for those that don’t do it and media folks, the bottom line is that we anticipated a challenging year, positioned portfolios accordingly, and remain in a position of relative strength. Also, in my experience, driving forward through the rearview mirror results in crashes! (don’t ask) 

Looking out into the future…we see a haze. Things could absolutely get worse before they get better for investors while we could also get a large market bounce higher before the end of the summer. In the face of this uncertainty, when we step back and let the data lead our decisions, it tells us we’re right where we’re supposed to be. Invested in quality areas of the global markets with an eye on long-term capital appreciation while at the same time tilted defensive with sizeable cash & cash equivalent holdings. 

Finally…there is light out there and the world is not coming to an end. The adjustment period post-Covid “stimulus-palooza” could take awhile and be painful at times, but, just when no one expects or is talking about it…things will begin to get better. In the meantime, we’ll continue to focus on capital preservation with an eye on the light…no matter how faint it may seem at times. 

“During the dry years, the people forgot about the rich years, and when the wet years returned, they lost all memory of the dry years. It was always that way.” 

-John Steinbeck, East of Eden 

Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer

1 Source: Bloomberg  

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and, although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers. For investment related terms definitions, please visit: Past performance is no guarantee of future results. Advisory services through Capital Investment Advisory Services, LLC. Additional information about CIAS and its From ADV Part 2A are available on the SEC’s website at