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.
About thirteen years ago when I started my career as a Financial Services Professional, I was almost instantly astute to the number one factor that determines client success. Of course, this determination was solely my own opinion. I’ve never turned on CNBC and heard scientific data backing it and likely never will. You can nearly ignore researching passive management vs. active management, throw out a comparison of exchange traded funds vs. mutual funds, and forget all about whether a Roth IRA or Traditional IRA suits you best. I believe the number one determinate of success that a client must have is “Proper Expectations”. It is by no coincidence that I believe Moore Financial Solutions clients have extremely reasonable, and ultimately the proper, expectations regarding investing. Investing long term is no casino, rather a patient approach to creating current income and future earnings. Prior to gaining licensure to be on your side financially, I know people that panicked and sold their entire portfolio and moved to cash positions in the Great Recession of 2008-09. They told the story years later to me regarding the vast missed opportunity and harm in locking in the losses. Imagine an investor panicking in Q1 of 2009 and selling stocks below 700 on the S&P 500, an index that is about eight times higher today at 5,635 (1). The S&P 500 would see gains of over 75% in the eleven months to follow, peaking this client’s FOMO and desire to get back into the market, only to sharply drop 16% over the next two months (2). My advice to you, and the number one way I can help you with your investment success, continue not being like this example investor. But rather, stay rooted in your investment philosophy. Realistically, the stages of someone’s investment life are humorous. We typically have little money early on, and it is easy to overcome the emotional impact from the money movement (a 10% decline in a portfolio of $2,500 might equate to a couple days’ earnings). But the problem is, there aren’t ample funds in that portfolio to provide life-changing growth either. For example, last year’s approximately 25% increase in a hypothetical S&P 500 index would have added only $500 to that portfolio. You want to play in the big leagues? Think you can handle the emotional impact of stocks and bonds? Try having an account of $750,000 or $1,000,000. You might want to pick up a fun hobby known for reducing stress, because there are going to be times when your portfolio hits rough spots. But there is good news too. Mathematically, just a 5% return on one million dollars is a gain of $50,000, and the reward for taming the emotional torment is much greater. Sadly, Q1 2025 was a great month to lean on those stress-reducing hobbies because the S&P 500 moved 4.59% lower for the quarter (3). Additionally, the S&P 500 moved 8.66% lower from February 19th, 2025, to the end of Q1 (4). Though the 4.59% has some sting to it, moving down nearly 9% in 40 days undeniably tests the emotional resilience of an investor, and we understand this firsthand. We are excitedly moving forward with this quarterly review to discuss what moved markets, tariffs, and what opportunities may arise. Without question, Wall Street found it very difficult to plan around the Trump tariff shifts. On January 26th, 2025, President Donald Trump announced a 25% tariff on Columbian imports as President Gustavo Petro attempted to decline inbound Columbian migrants. Petro retaliated with a 25% tariff against United States made imports. Shortly after, Petro begrudgingly received the migrants, and the trade dispute 2 ended, providing our president a quick trade war win. Moore F.S. believes this quick victory would go on to fuel President Trump’s confidence using tariffs as weaponry. On February 1st, 2025, President Trump laid the foundation for a 10% China tariff and 25% tariffs on Canada and Mexico. Just two days later the president would signal a 30 day pause on each of our neighbor’s 25% tariff (5). These back-and-forth movements continued off and on for much of the first quarter, with many tariff strategies subjecting only specific industries, e.g. automakers or steel producers, creating not only volatility in the broad stock market but especially within specific industries caught up in the talks. President Trump has labeled April 2nd, 2025, as “liberation day” signaling a big event. Throughout this back-and-forth, Moore Financial Solutions has made every effort not to be on the “wrong side” of the trade and has remained well rooted within our equity portfolio, when appropriate. We view, as mentioned in previous quarterly reviews, the volatility within the stock market as the “cost” or “price” paid emotionally to be able to receive the effective returns stocks could offer. In greater detail, rather than Moore F.S. attempting to time markets or predict the president’s next move and potentially being wrong, we’ll ride the storm out. Although Moore F.S. does not predict a bear market (described as a move down of 20% in the stock market), we point to the resilience of the stock market, overcoming all 29 previous bear markets and having done so rather quickly, taking an average of only 289 days to recover from the drop (6). Though we can’t rely on past market performance to guarantee its future, we believe this reaffirms our approach to using the stock market for clients with a long enough time horizon and ability to pay the emotional “cost” of seeing a portfolio move lower. Moore F.S. has theorized in past quarterly reviews, with no data to back it up, algorithmic trading (computers buying stocks at a “floor” or low point which might give the market support), and a trend of increasingly younger portfolio managers who have only seen speedy recoveries and long bull market rides might reduce the average bear market duration.
It is with great pleasure to work as your trusted advisor for another year! We hope you and your family had a Merry Christmas and you’re headed into a Happy New Year. To the surprise of some other financial firms, the stock market created sizable gains in 2024 with the S&P 500 increasing 23.3%, ironically within 1% of the year prior’s 24.23%. Additionally, that same market index returned a modest 2.06% in the fourth quarter of 2024, with all figures mentioned not including dividends (1). With Q4 of 2024 hosting one of the biggest elections of our lives, at least as described by some, we plan to discuss how our money management strategy evolves. We proudly stayed true to our strategy and didn’t decrease our allocation to stocks, while many other firms were selling covered calls and reducing their allocation to stocks as they incorrectly predicted a downturn in the markets for 2024. Even if you were living under a rock, you were likely informed that Donald Trump is headed back to the White House. We reference this change with the understanding that the leadership of current President Joe Biden is quite contrasting to the leadership we’ve seen from Donald Trump in the past, and his campaign promises. The Federal Reserve seemed to have had to slightly adjust their projected pace of rate cuts with the understanding that Trump will be more favorable to the economy through deregulation, corporate tax cuts, and repatriation of jobs. These factors, along with the deportation initiatives, may reignite inflation in the short term. The Center for American Progress puts the undocumented immigrant population in the United States at around 11.3 million, with 7 million of them working (2). To make matters worse, many of these jobs are considered “difficult to fill” and/or “less desirable jobs”. We believe the Federal Reserve felt the need to signal plans to slow rate reductions, after reducing rates in 2024. In September, the median projection for the end of 2025 implied four more rate cuts next year, but the median projection from December’s meeting only projects two more cuts (3). Below is the Federal Reserve’s dot plot, which is a chart that visually represents each member of the Federal Reserve's policymaking committee's projection for where they expect the federal funds rate (the benchmark interest rate) to be over the next few years.
