“Do not save what is left over after SPENDING, but spend what is left over after SAVING.”
- Warren Buffet, Chairman and CEO, Berkshire Hathaway

Happy Thursday,

The S&P, Dow, and Nasdaq were all down significantly in August. That followed an up month in July when the markets found much to celebrate. In August, the S&P was down 4.2%, the Dow was down 4.1% and the Nasdaq decreased by 4.6%.

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 all 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 and Covid recovery. 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, August 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 up 4.5% on a one-year basis, and up an annualized 10.1% on a ten-year basis.

The S&P was down 4.2% to 3,955 in August as the markets continued the rotation into only the best value investments, especially those companies that are profitable and have reasonable valuations. Strong Q2 earnings remain, but you must be selective in picking the best of the crop.
The Dow was also down 4.1% to 31,514 in August 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 4.6% to 11,816 in August as some Tech and Growth stocks showed weakness based on their inferior fundamentals.

In August, Covid-19 deaths in the U.S. continued their sharp downward trend as we continued the endemic phase of Covid. In addition, recent Fed dialogue has been more hawkish which has cooled economic expansion expectations. The last two hikes have been 75 bps which have caught the Fed up with their challenge to cool the economy, but not cause a deep recession. There will certainly be more rate hikes in September and beyond, but they may not be as high as 75 pts since the Fed is now "data dependent" and will try their best to manage a "soft landing".

In September, 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 may reduce that a bit so we can take advantage of any market 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 visit our Investments page to view our TOP 10 investments.

Thanks again for your consideration and ideas. Have a wonderful September 2022!

Best regards,
Marlene Oddo
Partner
PointFour Capital, LLC