Introduction by Paul Means

A Splash of Cold Water

December 2022

As someone who is celebrating their 50th year in the wealth management business, I can honestly say the headline above is a gross understatement for most investors. Having experienced a decade of excellent total returns, 2022 has provided a reality check emphatically stating that markets do not go straight up forever. A member of an investment committee which I chair recently remarked that the stock market is neurotic--not a bad description given the volatility we have experienced this year. This year we have witnessed a massive selloff in bonds, an implosion in cryptocurrencies, a plunge in tech stocks, and the highest inflation rate in 40 years. Keep in mind, as Lloyd Blankfein, a former chief executive of Goldman Sacs Group, stated, “It’s never as bad as your worst fears or as good as your best hopes.” Over the years, the stock market has endured several very distressing events. Here are a few that you have lived through or read about. • Great Depression—The Dow fell 90% in less than four years. • 1962 Cuban Missile Crisis—The Dow dropped 26.5%. • 1990 Iraq invaded Kuwait—The Dow fell 17% in three months. • March of 2000—Dot-com bubble—The Dow dropped 15.8% in a month. • September 11, 2001—Terrorists killed 2,996 people in New York City, Washington D.C. and Shanksville, Pennsylvania—The Dow dropped from 10,033 at the first of September to a low of 8,235 on September 21, 2022, a 17.9% fall. • 2008-2009 Recession—The Dow fell more than 50% in just 17 months. • 2022 correction—The Dow dropped from a market high of 36,799 in January 2022, to hit a bottom-to-date of 28,725 in October, a drop of 21.9%. So where could we go from here? Volatility will continue. The Fed has indicated it will keep its foot on the accelerator until inflation shows significant signs of decline. Inflation should end this year around 7.5% and begin to drop in the first quarter of 2023. The hope is the Fed will pause after December and reflect on how previous rate hikes have impacted the economy. Several Federal Open Market Committee (FOMC) members have acknowledged that the pace of tightening may need to moderate in the coming months. “The key is for the Fed to see actual progress in core inflation and services inflation,” said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis. Any pause in raising rates will be interpreted favorably by the markets. There are signs that inflation is beginning to ebb. Demand for goods is weakening and although services remain strong, they too are showing signs of eroding. In addition, many corporations are reducing labor. If bond yields are peaking, equity prices will stabilize. Other positive market movers would be a change in Russia’s approach to the war in Ukraine, a falling dollar and the release of additional oil supplies by Saudi Arabia. In closing, I have to say that cultivating the relationships with clients I have enjoyed over the past 50 years has not been a labor of effort, but of love. In that spirit, our entire Means staff join me in wishing you and your family a healthy and happy Holiday Season and New Year. Sincerely,