"In the end, how your investments behave is much less important than how you behave."
- Benjamin Graham, Economist, professor, and father of “Value Investing”
Happy Tuesday,
The S&P, Dow, and Nasdaq were all down significantly in June. That followed an up month in May when the market rallied in a significant manner. In June, the S&P was down 8.3%, the Dow was down 6.6% and the Nasdaq decreased by 8.8%.
In our view, the market continues to be driven by two divergent realities. On the one hand, the Covid-19 recovery, job creation, and continued consumer spending are pointing the economy in a positive direction. On the other hand, the markets are reacting to near-term inflation spikes 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 medium-term.
That said, June continued the "buy the dip" portion of this general pull-back. We believe the markets will remain uncertain, with pullbacks becoming a regular event all year long. Our public equities portfolio, which includes a significant amount of hedging, is still up 1% on a one-year basis and 9+% on a ten-year basis.
The S&P was down 8.3% to 3,789 in June as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
The Dow was also down 6.6% to 30,824 in June as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
Nasdaq collapsed further by 8.8% to 11,032 in June as Tech and Growth stocks continue to be restrained by their still-high valuations.
In June, Covid-19 infections, hospitalizations, and deaths in the U.S. continued their downward trend as the pandemic recedes from view and the endemic takes hold. In addition, the Fed implemented the second of 3-7 rate hikes in 2022 to control inflation which has cooled economic expansion expectations. We are now officially in recession with most economists predicting negative growth in Q2 ‘22.
In July, we believe the public markets will continue rotating to value stocks with real earnings and low PE ratios and continue shedding growth stocks with still-high valuations. Back in January 2022 we increased the cash/bond part of our public equities’ portfolio to 60% and expect to keep at least 40% liquidity in Q3 ‘22 so we can periodically take advantage of any market corrections.
We especially like the Financial, Industrial, Energy and Utility sectors where values are more reasonable, and profitable growth stocks which should increase as the country opens back up for business. Morgan Stanley, Berkshire, Google, Consumer Staples and Verizon (5% dividend) 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 visit our Top 10 investments page to view our latest picks.
Thanks again for your consideration and ideas. Have a wonderful July 2022!
Best regards,
Marlene Oddo
Partner
PointFour Capital, LLC