The State of Financial and Political Volatility
It’s the middle of March 2023 and the financial and political worlds have remained volatile for more than a year, with mostly negative news in the headlines.
War in Ukraine continues and inflation is virtually everywhere. Real estate sales are slowing. We’re coming out of the worst bond market ever in 2022, and one of the five worst stock market years for returns since 1929. The technology sector is now experiencing layoffs for the first time since 2008, and we have lost confidence in virtually everything coming out of Washington, DC. Did I even mention China?
Why do I remain cautiously optimistic? Perhaps I am an eternal optimist. I really believe in the strength of American capitalism and ingenuity. We are leading the world in so many ways…technology, healthcare innovation, amazing new drugs, cancer cures, travel and leisure, and restaurants exploding with guests since Covid restrictions have ended. Even with the Federal Reserve raising interest rates, we, as consumers, remain bullish on our future.
Investment Opportunities Amidst Challenges in the Market
Today’s challenges, however, give us the opportunity to reposition where our money is being invested, at least for the short term. History has taught us that in the twelve months of bond returns following a year like 2022, there are significantly above-average returns. So, and I can’t believe I’m saying this, I am bullish on many bond sectors. In the Equity Markets, Europe can outperform the United States for the first time in half a decade.
It’s not just because they are doing things well. It is mainly because they are coming from such a discounted and depressed state that it’s just easier to inch up success when you have less distance to go. Domestically, here in the United States, we are still in for a rocky ride. At some point, our growth engine, Technology, will break out and lead the way.
Betting on Strong Balance Sheets and Dividend-Paying Sectors
Until that day comes, we are heavily betting on companies with strong balance sheets, with lots of cash on hand, and that routinely pay dividends. Perhaps even paying rising dividends each year.
We call this the “Value” play. When you look at our portfolios, you will not miss it. We also believe that the Energy and Healthcare Sectors, both high dividends paying sectors, are strong buys this year.
Potential Disruptors and the Importance of Long-Term Goals
Of course, two big potential disruptors still exist. China could invade Taiwan or begin arming Russia in the Ukraine conflict. Russia could still expand the war to another country. The Federal Reserve could boost interest rates significantly higher, moving us into a recessionary period with higher prices and lower employment, similar to the 1970s. Plus, with the current US gas and oil sectors not being supported by the Washington Administration, we could face higher energy prices due to a lack of supply (another reason we are bullish on the Energy sector).
Matching your investments with your risk tolerance and long-term goals is paramount.
For more information and a full 2023 review of your investment strategy, let’s get together. I look forward to seeing you soon.
All my best,
Elliot Kallen, President
