September  1, 2022

Most equity markets experienced a renewed selloff in August, as the S&P 500 was down -4.08%, US small caps -4.39%, US mid-caps -3.10%, international developed -4.70%, and emerging markets up +0.68%1.

After shifting to overweight equities for accounts in our primary Investment Strategies on 6/14/22, near the June 2022 equity market lows, the S&P 500 rose over +15% from 6/14/22-8/16/221. As such, on 8/16/22, we reduced equity exposures back down to target allocations for accounts in our primary Investment Strategies. 8/16/22 ended up being the exact day that the S&P 500 marked its highest level since April, and was the day that the S&P 500 hit the 200-day simple moving average, a resistance level that often serves to limit short-term market upside.

Since 8/16/22, the S&P 500 has declined -8.05%1. We believe the primary reason for the renewed equity market selloff in late August was driven by Fed Chair Powell’s comments at Jackson Hole on 8/26/22, when he opined that bringing down inflation could cause “some pain” for the US economy2.

Our team is monitoring the markets closely. If the equity markets were to decline further from current levels, we would likely add to equity exposures once again, given that inflation may have begun a slowing trend when it slowed to 8.5% in July from 9.1% in June, based on data from the US Bureau of Labor Statistics3.

The 10yrTy rose in August from 2.65% to 3.20%, causing Treasury bond prices to decline1. We opined in last month’s commentary that we believed inflation could remain above the Fed’s 2% target for a long time, which could cause interest rates to move higher. Therefore, we generally remain exposed to bonds with a shorter-term average maturities (e.g. 5.5 years for our Balanced ETF Strategy) compared to the US Aggregate Bond Index’s average maturity of 8.8 years; bonds with maturities in the relatively near future tend to have smaller short-term losses when inflation is high and interest rates are rising4,5.




External sources: Bloomberg data1, CNBC.com2, US BLS3, Morningstar4, iShares5.

For more information about our investment philosophy, see MTC Wealth Management.


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