Quarterly Client Letter – 3rd Quarter 2022

One couldn’t turn on any financial news source within minutes of the market close on June 30th without hearing or reading that the S&P 500 had the biggest decline for the first six months of a calendar year since 1970.  And while the market decline was both real and significant, the desire by financial journalists to sensationalize seems to trump their desire to report facts in the proper context.  Because if you remove the arbitrary constraint of “first six months of a calendar year,” you will find that there have been quite a few market declines of similar or greater magnitude over the same period.  Indeed, over the 50-plus years since 1970, there have been seven previous declines of 20% or more – eight, including the current one.  That comes out to one about every six-and-a-half years. 

While we have no way of knowing if we’ve seen the bottom of this current bear market, history suggests we could have farther to go, as the average bear market sees a 38% decline and a 19-month duration.  Of course, actual outcomes have varied widely. 

The market decline we’ve seen this year is a response to the highest inflation we’ve seen since the 1970s, the anticipation of higher interest rates to combat said inflation, and the fear that doing so could push the U.S. economy into recession.  Of the three (inflation, rising interest rates, recession), we view inflation as the most troublesome, and are heartened that the Fed is willing to raise rates as much as necessary, even risking recession, to get inflation under control. 

What has proved most frustrating to us, as regular readers of our commentary will recall, is that we have long identified inflation as the most pressing and imminent risk, and we have long believed that higher interest rates were overdue.  And yet, despite believing we were well-positioned for what was to come, our portfolios have not been immune to the sell-off.  Even large bond allocations haven’t helped our most conservative accounts as much as we’d normally expect, with bonds down 10% this year, due to rising interest rates, making this the biggest simultaneous drop for stocks and bonds – again – since the 1970s.  We can, however, point to a few positives:

  1.  We’ve avoided the worst of it.  Even though “the market” as measured by the S&P 500, is down 20%, a large number of funds, companies, sectors, and asset classes have seen far worse declines.  For example, the rapidly growing tech stocks favored by Cathie Wood’s widely-followed ARK Innovation Fund have lost nearly two-thirds of their value.  Bitcoin is down 70%.  Many well-known, popular stocks that performed so well after the pandemic crash have done complete round-trips, or worse, with declines of 50% – 80%, and more.  Think Roku, Shopify, Zoom Communications.  We are happy to have had no broad exposure to declines of that magnitude.
  2. We worry about permanent – not temporary – loss of capital.  While selling can be indiscriminate during bear markets (babies thrown out with the proverbial bath water), some investments will recover, others will not.  We firmly believe we own the former. 
  3. Small performance advantages can make a big difference over time.  Our client portfolios, depending on allocation, are down on average 14% – 18%.  While these declines are painful, we are happy when our results beat the market, regardless of the circumstances.  Beating the market by 2% – 6% in a down market means we have less loss to make up and can potentially recover sooner. 
  4. History suggests better returns are ahead.  After entering bear market territory, stocks average double-digit returns over the next 1, 3, and 5 years.  In none of the previous bear markets were subsequent 5-year returns negative. 

The bottom line is that we don’t think we are in anything other than a normal, corrective market cycle that is likely to follow historically established patterns, meaning it could still get worse, but will most certainly get better, eventually.  Markets tend to discount recessions in advance, and by the time we’ve confirmed that we were in a recession, it will probably be nearly over, and the market will have already bottomed.  Inflation is the real enemy, but we believe the Fed has the tools, and the will, to control it.   Better days are ahead.

Finally, we are happy to report that after a multi-year, COVID-induced hiatus, we will once again be hosting a client reception in the fall with a very special guest speaker.  Please mark you calendars for Wednesday, September 14th.  Details will be sent at a later date.  We hope to see you there!

 SoundPath Investment Advisors

Eddie Carlisle     Doug Muenzenmay        Julius Ridgway



Share on:

Share on facebook
Share on twitter
Share on linkedin

Sissy Moreland

Client Services Trading

A graduate of Mississippi State University, Sissy joined Medley & Brown in 2017, but her career goes all the way back to 1990 when she was the merchandise director for four years at Phi Theta Kappa. She was also Customer Service Manager and Marketing Development Manager at Crystal Springs Apparel from 1994 to 2005. From 2005 to 2017, she was Manager of Sales Administration at Skyhawke Technologies. Thanks to her considerable operations and administrative experience, Sissy oversees trading and assists with most back-office operations for the firm. Staying so busy at work requires Sissy to recharge her batteries outside the office from time to time which she does by running, reading, enjoying a leisurely brunch, and watching the Saints play football.

Beth Braswell

Client Services Coordinator

Beth spent four years in the investment world before joining Medley & Brown in 2004 as our operations coordinator. She and her husband Robbie are busy parents to identical triplet daughters, so not surprisingly, some of Beth’s favorite things to do are napping and relaxing on the beach when she actually finds the time. Beth also enjoys taking short walks to the pool, attending concerts, and going out of town for long weekends. Beth loves her Mississippi State bulldogs and currently has four dogs, three cats, and three grandcats because having three children simply isn’t enough. No wonder her operational skills are so exceptional.

Doug Muenzenmay, CFA, CFP®

Senior Advisor   |   Principal

When he’s not enjoying the outdoors or attending his children’s school and sporting events, you can find Doug studiously researching investments for his clients. His career began in 1991 after graduating from the University of Iowa with a bachelor’s degree in economics. He spent 17 years in trust investments at three different banks before joining Medley & Brown in 2010. Doug also got his MBA from Mississippi College and served as an adjunct professor in finance there from 2007 to 2013. Married to his wife Sharon since 2001, Doug is a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), and a board member of the CFA Society of Mississippi.

Eddie Carlisle, CFP®

Senior Advisor  |   Principal  |  Chief Compliance Officer

Eddie’s extensive education includes a B.S.B.A. in accounting, with special distinction, from Mississippi College in 1994, along with a J.D. from Vanderbilt University and LL.M. (Master of Laws) in taxation from the University of Florida. But it’s what he’s learned outside of school and work that really stands out. He’s an Eagle Scout, which taught him a great deal about honesty and hard work from an early age. He learned even more earning black belts in Taekwondo, Hapkido, and Hanmudo. Oh, and he studies the Korean language in his spare time as well. Additionally, Eddie serves as an adult leader for Scout Troop 164 in Madison. He is a past board member of Hope Hollow Ministries, the Central Mississippi Down Syndrome Society, and the Mississippi Corporate Counsel Association. Eddie is currently a board member of the Woodward Hines Education Foundation. He enjoys spending time with his wife, Sarah, and their three children—Andrew, Caroline, and Emma. 

Julius Ridgway

Senior Advisor   |   Principal

Judging from his background, you’d think investments and other financial matters were all Julius cares about. After all, he has two decades of direct investment experience and spent the previous ten years involved in banking and real estate. Julius also received a masters degree from the London School of Economics in 1998, an MBA from Millsaps College in 1993, and a history degree from the University of Mississippi in 1990. But his true passions include driving sports cars on racetracks or twisty mountain roads, running ultramarathons, and taking road trips with his wife and son. He’s worked here since 2002 as a Chartered Financial Analyst (CFA) and member of the CFA Institute while also serving as an adjunct instructor at Millsaps College and board member of New Stage Theatre. It takes major dedication to tackle all these responsibilities—sort of like training for all those long distant runs—but Julius enjoys every minute of the grind. And when it’s time to slow down, Julius finds the best way to clear his head is taking long hikes in the mountains on all those road trips.