Moore Financial Solutions Second Quarter 2022
Tyler Moore • July 8, 2022
The second quarter of 2022 reminded investors that volatility remains a function of long-term investing, as the broad stock market attempted to identify if the United States is headed into recession. As the S&P 500 posted another losing quarter, falling 16.45%, the market seemed to be pricing in a recession (1). The Federal Reserve moved interest rates higher to ease inflation while not showing much remorse for how financial markets were impacted. The Federal Reserve appears to be willing to slow the economy to avoid long term detrimental inflation. This Moore Financial Solutions quarterly review will detail the Federal Reserve’s actions, interest rate function/strategy, and how we aim to navigate the uncertainty moving forward. As I personally receive feedback from clients and aim to adjust to their needs, I am specifically tailoring this review to be more understandable to the client who holds less knowledge of financial markets/investment management.
By the time you reached high school, you likely learned that your life will be most comfortable when you set a budget and stick to it. You may budget $500 per month for your family to spend at the grocery store, and for years that number worked. Suddenly, that same $500 no longer allows you to enjoy the quality of foods you’ve grown used to. As you plan meals prior to going to the store you find it hard to determine which recipes include a good balance of nutrients and cost because prices are changing so rapidly. In addition, some items have increased in cost much more rapidly than alternatives, leaving you less confident in which to select. Comparatively, companies are making many of the same tough decisions, with little clarity on which direction prices are heading. These small choices that families are presented with, draw comparison to massive multimillion dollar long-term decisions corporations are making. These characteristics lead to uncertainty within both your family and corporations. You may ask, “why do I care about corporations, I hear their greed is the problem”? The answer is simple: You own the corporations! You own them in your accounts managed by Moore F.S., through your 401k, etc.
Clearly, when prices are increasing, this makes it tough for both large corporations and everyday families. Additionally, price instability is a huge concern and makes financial planning very challenging. We plan to detail how price instability occurs and the potential course of action to mitigate it.
Covid-19 sent shock waves through the system and created an imbalance to many individuals. Those in the service/hospitality industry were struggling to make ends meet, while those in the I.T. industry were saving money working from home. As it was difficult to determine quickly who needed help the most, direct payments went out to most Americans. These direct payments were a life support to some, while simply adding to the savings accounts of those who needed the payments less. In addition, an estimated
$2 Trillion in emergency aid was provided through the C.A.R.E.S. act and other emergency stimulus (2). As this emergency package of money seemed to be air-dropped into Americans’ laps, they continued to build their savings and pay down debt, a common strategy during times of fear/uncertainty. Months down the road the consumer strengthened, and Covid-19 appeared to be another challenge that we as Americans could overcome. Vaccines came out, Americans became confident in their natural immunities post-infection, and antivirals were released. Suddenly people felt like they got their groove back. As the now healthy consumer bounced back from living under their rock, they felt comfortable spending again, and with interest rates at near record lows, they were able to stretch their dollar when they elected to finance larger purchases. This large amount of money, competing for a limited amount of goods, quickly led to inflation. Inflation increased further with record gas prices and increased labor costs, as many pushed for a higher minimum wage. A higher minimum wage generally moves the majority of wages higher. Inflation is like a natural gas leak in your home, it needs fixed immediately to not lead to a much worse explosion (within the economy). Suddenly, a Federal Reserve that approximately 15 years ago was decreasing interest rates to put the economy on a steroid, is tasked with increasing interest rates. In addition to increasing rates to slow the economy, the Federal Reserve is reducing their balance sheet.
This effectively pulls money out of the economy, leading to less overall supply of money within the economy. The Federal Reserve can sell treasuries and similar units to pull money out of the economy. As monetary policy becomes more restrictive, individuals and corporations become more selective on where money is spent. This short-term (hopefully) slowing of the economy allows prices to stabilize.
Jerome Powell, the Federal Reserve Chair, has voiced a commitment to do whatever it takes to control inflation and has said the bigger risk is to fail to restore price stability (3). As interest rates rise and monetary policy becomes more restrictive, the stock market is taking a step back with the S&P 500’s first 6 months of 2022 returning negative 20.58% prior to dividends (4). The last 3 years the S&P 500 has returned 31.49%, 18.40% and 28.71 respectively, for years 2019-2021 (5).
Most clients want to know, “when will the pain end and what will make it end?” This answer is complex and regarded as difficult to answer, in our opinion. We remain optimistic that Jerome Powell is transparent and committed to his goal to do whatever it takes to beat inflation (6). This is far from an immediate win for the economy though, given his main tool to fight inflation is tighter monetary policy, which may involve a slowing of the economy. We feel additional optimism is drawn from the Federal Reserve being aggressive in the recent .75% interest rate increases, as opposed to a .25% increase, for example. We believe the Federal Reserve is having to be so aggressive because they were late to begin increasing rates, as they admit to some degree, they got it wrong that inflation was not just transitory (7). It is hard to determine when the pain of this bear market will end, as it seems to hinge on whether the United States will go into a recession, which hinges on if the Federal Reserve will tighten monetary policy enough to tamp down inflation without overshooting and sending the economy into unnecessary downturn. A recent Forbes article suggests bear markets historically last 449 days when they precede a recession, compared to 198 when a recession does not occur (8). In our opinion, if inflation readings can begin to show that Federal Reserve policy is having the desired effect, markets will begin to recover. Moreover, a Jerome Powell win regarding the velocity and trajectory of interest rate changes may keep the economy out of recession.
We understand that market volatility naturally creates discomfort and concern. It serves as a reminder that the stock market is not a money tree, and one must maintain an understanding of volatility at times. In 2022, we aim to implement strategy regarding conversions from IRAs to Roth IRAs for clients in which it is appropriate. Additionally, we are enacting a reallocation strategy from bonds to stocks, when appropriate. Contributing during lower markets remains a key priority to getting what you deserve once stock markets recover. We see current market contributions like piers driven the deepest in the construction of a bridge. While these piers take the most effort, they in turn bear the most weight. Comparatively, it may seem difficult to continue to contribute now but these contributions stand to make the most progress once markets recover.
I continue to manage each account individually and strive to put the upmost strategy and effort into getting you what you deserve. This month marks my 10th year in the industry, and I want to thank you for being a valued client of my firm. Whether I’ve been working with you for 10 years or 10 days, my goal is to make your investment experience comfortable in all market conditions. Some years my best influence on your money may be to lose less than the broad market by remaining diversified and not blindly following risks. As we are halfway through this year, only time will tell how it will end up. I’m proud to say that while some investment firms are trying to find a reason to put you into a new product, my goal is to always act in your best interests. It is with great pride to act as your fiduciary and navigate challenges together.
As 2025 ends, we joyfully review another positive quarter for the S&P 500, with it logging about a 2.3% gain, plus dividends (1). Much like a banked 3-pointer in a game of basketball, we won’t complain about scoring points, even though it may not have looked pretty, with extreme volatility near April (and again seven companies creating a large portion of gains.) Realistically, the annual return of 16.39% on the S&P 500 for the year is great, especially when it follows 24% and 23% returns the prior two years (2).However, we take exception to the continual heavy lifting done by the “Mag 7” (Google/Alphabet, Nvidia, Microsoft, Tesla, Meta/Facebook, Apple, and Amazon) as they now make up nearly 35% of the S&P 500. The other 493 stocks making up the S&P 500 represent the other approximately 65% of the index and only returned approximately 10% for the year. I will discuss much more on this and how Moore F.S. has attempted to mitigate some of this Mag 7 risk. Additionally, we’ll discuss interest rate movements along the yield curve, the Federal Reserve, and share our most recent trade and strategy for 2026. More than likely “Mag 7” is a phrase you’ve heard of. Naturally, some of you have not heard of the financial term Mag 7, so perhaps the only thing coming to mind is the 1960 movie The Magnificent Seven. In today’s world Mag 7, as mentioned above, refers to some of our largest publicly traded companies in the United States. Not by coincidence, each of these companies are all using Artificial Intelligence (A.I.) in some way. This ranges from Microsoft being extremely involved, Nvidia the A.I. hardware backbone, to Tesla using moderate adoption for self-driving. Our view is that the recent run up in big tech likely is merited, with J.P. Morgan recently offering, “the advent of generative AI is a seminal moment in tech, more so than the Internet or the iPhone (3).” With some offering such a bullish viewpoint on the Mag 7 we do not fear investing in it for the appropriate client. But, with the Mag 7 having about a 29 price to earnings ratio (read MFS Q1 ’24 review to learn more about how we use P/E ratios) and the other 493 stocks that make up the index having a P/E ratio of only about 20, we believe the time has come to reduce our exposure to Mag 7 holdings. We consider it our foremost goal to balance risk. By taking a risk/reward analysis approach, we believe the value is in the 493, but we are not abandoning the Mag 7 holdings.
With many asset classes moving higher in Q3 we hope you were able to take advantage within your account! I’m pleased to be able to review an S&P 500 that was able to maintain a generally upward trend since April 8th, 2025, a day that would not so ironically be the only closing price below 5,000 so far this year, an important statistic we will discuss in greater detail later. As investors weighed a decreasing rate environment in which the Federal Reserve reduced rates, and a weakening labor market, the S&P 500 logged a 7.79% increase (1). Fixed Income rallied with the Moore F.S. largest bond holding (iShares 20+ Year Treasury Bond ETF) increasing about 1.27% within Q3 (as of 09/30/25) and paying another nearly 1% dividend for the quarter (2). With stocks and bonds rallying together over the last quarter, I’ll discuss market moving events within the quarter, lay out my opinion of how investors can consider deploying capital in a highly valued market, provide trading ideas, and discuss our thoughts on why U.S. markets are priced at a premium globally. Tasked with fiduciary* management of hundreds of accounts, Moore F.S. is always strategic about your investment holdings, and attempts to strike a solid balance of risk and reward within each account. The gray-haired veteran’s account looks far different from the client born this side of the new millennium. To support this strategy, we believe that interest rate policy and trajectory can be the easiest variable to monitor regarding the decision making of portfolio construction, which Moore F.S. is proud to do “in house”, instead of using high-cost mutual funds for example. This Exchange Traded Fund oriented strategy typically results in the older client’s asset allocation being constructed of stocks and bonds strategically, and the client of the “new millennium” hosting strategy that is more related to the capitalization of stocks. In other words, in the average environment, Moore F.S. tilts younger portfolios more to small caps (using smaller companies instead of the large ones like you’ll find in the S&P 500). To oversimplify, Moore F.S. set portfolios up to help them better perform when rates fall. We feel strongly that the active management of passive ETF’s can help ensure you’ll have solid asset allocation without using actively managed mutual funds which typically lag.
