The financial waters calmed a bit more this week for a refreshing change and was long overdue. I know many of us are ready to put 2022 in the rearview mirror. As part of our ongoing due diligence process, we have been listening to several management teams from our respective investment holdings, present their third quarter results and outlook. Several themes have resonated regularly through these Zoom and conference calls. Consumer balance sheets remain strong despite the inflationary pressures overshadowing the economy currently. Supply chains issues, while still choppy, are slowly being resolved as evidence by inventory build-ups now occurring in several sectors. Shipping costs, metals and lumber have corrected significantly from where they stood at the start of the year in yet another positive sign. The homebuilder sentiment in the single-family market has dropped by half of what it was only six months ago. This has been mostly driven by the rapid increase in interest rates. The average rate on the 30-year fixed was more than 7% this week, up nearly 3% from where it started this year. Clearly, consumers are now pulling back the reigns on the home front, but I believe this will be short lived as a larger housing inventory issue still exists.
The question we are asking ourselves now is what are these data points telling us? I believe the actions of the Federal Reserve are beginning to show signs of working. Keep in mind that many of the metrics the Fed uses are retrospective and take time to “catch-up”. For now, we know there is a planned interest rate increase in November and most likely another in December. I believe the market actions we have seen this week are indicative of the forward-looking belief that a slowdown or even “pause” could be on the horizon. In my opinion this would be healthy and warranted. Take a pause and let the data catch-up, then evaluate. Inflation will come down, but it may take some time to work through the system.
Another potential rallying point in the near-term could be the outcome of the mid-term election. I don’t want to engage in a political debate, but a more “neutral” government generally means less significant policy changes. Historically, the financial markets like the stability of a split and balanced government. Any uncertainty that can be taken out of the system should help to shorten the length of any sustained downtrend. I suspect we will start to see some of this take shape as we move into 2023 and beyond.
In times of fear, the overall “negative narrative” can overshoot the reality of the situation. I’m beginning to wonder if that is where we stand today. Don’t get me wrong, there is much to sort out on an economic front, but many of the headlines from earlier this year seem to be behind us. The saying that “time heals all wounds” seems appropriate right now. History has shown, and I believe, that time will indeed heal our portfolios.
Have a nice weekend!
https://www.wsj.com/articles/southern-californias-notorious-container-ship-backup-ends-11666344603
https://www.cnbc.com/guide/midterms-2022-top-senate-races-oz-walker-vance-kelly/
Christopher E. Wasson, CFP®
President
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
MosaicAssetPartners.com
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.