“Invest for the long-haul. Don’t get too greedy and don’t get too scared”
- Shelby M. C. Davis, founder, Davis Advisors

Happy Monday, The S&P, Dow, and Nasdaq were all down significantly in September. That followed a down month in August when the markets found nothing to celebrate. In September, the S&P was down 9.3%, the Dow was down 8.8% and the Nasdaq decreased by 10.5%.

In our view, the market continues to be driven by two divergent realities. On the one hand, the Covid-19 recovery, job creation, and consumer spending are all pointing the economy in a positive direction. On the other hand, the markets are reacting to stubborn inflation in the U.S. (caused in part by the government support payments) and the global supply imbalance created by the war in Ukraine. These two competing realities have upset the markets, but we are in this for the long-term, so we need to keep a steady hand and look to add value investments in the short and medium-term.

That said, September continued the general market pull-back. We believe the markets will remain uncertain, with pullbacks becoming a regular event all year long. Our public equities portfolio, which still includes a significant amount of hedging, is down 2.3% on a one-year basis, and up an annualized 9.8% on a ten-year basis.

The S&P was down 9.3% to 3,586 in September as the markets continued the rotation into only the best value investments, especially those companies that are profitable and have reasonable valuations. Strong Q3 earnings remain, but you must be selective in picking the best of the crop.
The Dow was also down 8.8% to 28,726 in September as the markets continued the rotation into only the best value investments, especially those companies that are profitable and have reasonable valuations.
The Nasdaq decreased 10.5% to 10,576 in September as Tech and Growth stocks showed weakness based on their inferior fundamentals.

In September, Covid was a non-factor, but recent Fed dialogue continues to be very hawkish which has cooled economic expansion expectations. The last three Fed hikes have been 75 bps which have helped cool the economy and reduce inflation, but they are not finished yet. There will certainly be more rate hikes in October and beyond since the Fed needs to see real inflation reduction (target is 2.0%) before they take their foot off the gas pedal. The Fed is still "data dependent" and will try their best to manage a "soft landing”, but it is more likely that they will cause a serious economic dip in 2022 / 2023.

In October, we believe the public markets will continue rotating to value stocks with real earnings and low valuations and continue de-valuing growth stocks that have little or no earnings or have high valuations. Back in January 2022 we increased the cash/bond part of our public equities’ portfolio to 60% and in Q3 we kept that the same so we can take advantage of future buying opportunities.

We especially like the Financial, Industrial, Energy and Utility sectors where values are still very reasonable, and we like profitable growth stocks like Apple and Google which should increase in the medium-term. Morgan Stanley, Berkshire, Google, Apple, Wells Fargo, and Consumer Staples all continue to be top value selections as we view them as stronger and more nimble competitors in their respective sectors, and they do not have much exposure to Russia. Please take a look at our latest Top 10 investments here. Thanks again for your consideration and ideas. Have a great October / Q4 2022!

Best regards,

Vincent M. Oddo
Managing Partner
PointFour Capital, LLC