Y H & C Investments May 2022 Update- Edition 165
|Index/Asset||April 2022||Year to Date 2022|| |
|Dow Jones||-5.29%||-9.25%|| |
|S&P 500||-3.27%||-13.31%|| |
|Russell 2000||-10.86%||-16.98%|| |
|Silver ||-7.96%||-2.44%|| |
|10Yr Treasury |
January 1- 1.631%
April 29- 2.88%
|+50.4 Bp||+132.7Bp||Note- 100 basis points makes up 1.00%|
|U.S. Dollar Index||+4.64%||+7.55%|| |
|Bitcoin-Jan 1, 2022-46, 055|
April 29, 2022
|Y H & C GARP Model||-9.6%||-16.5%||https://interactiveadvisors.com/yhc-investments?portfolio=long-term-garp|
|Y H & C Concentrated GARP||+7.7%||+5.4%||https://interactiveadvisors.com/yhc-investments?portfolio=concentrated-garp|
|Y H &C Results Are not GIPS Certified and dependent on third party calculations. They are time weighted|| || || |
U.S Economic & Financial Markets Outlook-1st Qtr GDP Declines 1.4% as Inflation Makes its Mark; Equities Suffer Another Tough Month! (Return figures in this section come from the April 29, 2022, editions of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
In April, the Dow Jones Industrial Average gained lost 5.29%, the S&P 500 fell 3.27%, and the Nasdaq dropped 13.51%. The three major indexes all retreated during 2022 and the recent month was particularly difficult as losses accelerated as the month progressed. On the macroeconomic front, a recent report by the Bureau of Economic Analysis shows first quarter GDP growth dropped 1.4%. These numbers back up the thesis offered by many economists of a U.S. economy which is dramatically slowing. Front and center for consumers, businesses, and the government is the yearly trend of surging prices across all areas of the economic spectrum. The most obvious focal point is energy. Oil prices are hovering at $100 per barrel or more, and natural gas in the United States is right around $7/ mmBTU. The natural gas price here in the United States is far below what it sells for globally. For a little context, natural gas sells for over $40/mmBTU in Europe and over $25/mmBTU in Asia. With mortgage rates spiking over 5% for a thirty-year borrower, the housing sector has seen volumes shrink year over year. The auto sector remains hampered by the lack of supply of new cars, which is tied to the problems in the semiconductor supply chain. In the financial sector, investment banking results have been hurt by the selling of equities and reduced merger and acquisition activity. Interestingly, if equity prices remain depressed, deal interest would pick up as aggressive companies are always looking to acquire on the cheap.
On the positive side, the services sector is seeing a nice lift from the continuing rebound in the travel industry. Based on trend figures from the TSA, 2022 totals are now approaching 90% of 2019 levels. As the country moves into summer, the travel area looks poised for more strength.
As for the equity market, if one looks closely at the April selloff, the boost in bond yields continues to affect investor sentiment towards equities. The pain across stocks is deep, but especially concentrated in the technology heavy NASDAQ. It is painfully obvious the biggest drawdowns have come from the largest gainers during the peak of the Covid crisis. Still, many of these companies sell for stratospheric multiples which cannot be justified in an economy plagued by inflation and potentially moving into recession. However, investing in stocks is a commitment for years or decades, not weeks or months. The best investors get excited when markets sell off, so now is an excellent time to pay close attention to the companies you really want to own.
Global Economic & Financial Markets Outlook- Global Markets Struggle with Inflation, Ukraine Conflict! (All country index data provided by countryeconomy.com, April 29, 2022)
There an old saying that ‘War is H-ll.’ If you are an equities investor, it is indeed proving problematic. Globally, most of the major equity indexes are showing 8-12% losses on a year-to-date basis. The pain is particularly acute in the European continent, especially in the Eastern European countries bordering the Ukraine. Many of the countries of Asia have losses in the five to ten percent range. With the Russia-Ukraine conflict stretching into its third month, food and energy supplies, along with many metals, will increasingly face shortages across the globe. There are always areas which benefit from problems, and in this case, take a gander at the results of oil producing countries. Saudi Arabia (+21.74%), Kuwait (+21.85%), United Arab Emirates (+18.77%), Norway (+13.67%), and Canada (+9.37%) are enjoying the benefits of strong oil and gas prices.
Looking ahead, the prime focus for the globe will be on energy markets. Russia’s request for payments in Rubles on energy exports is a factor for all of Europe as they are highly dependent on Russian energy. My thinking is the globe will increasingly move towards regional trading partners with obvious blocks being North America, Asia, and Europe. The major question is how China and India will approach each of these regions because of their dependance on oil imports.
The Art of Contrarian Thinking-Difficult Markets Highlight the Problem of Passive Investing! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
Capital flows over the last decade have increasingly moved towards low-cost equity indexes or exchange traded funds. With much academic research documenting the low probability of returns better than the major indexes, passive investing has resonated with investors. Active investing is a tough chore if your objective is to have better performance than the market. However, there is another perspective to consider. What if the major market indexes suffer through a tough few years, or even decade? If your investments are concentrated in just owning index funds or passive exchange traded products, you are dependent on the markets going up. Historically, it is a very good bet as about every three out of four years, markets rise. Still, there have been decades where markets do very little so index owners see meager returns. It is why you really must consider a wide range of strategies when thinking about your investments.
Y H & C Investments: Bright Spots in A Difficult April
Over the course of the last month, if you are a long only investor, it was a difficult period. Still, we had a few successes for clients as a company was bought out at a nice premium. Also, some of the smaller entities we own continue to post solid results. We also welcomed a new family to our investors and thank you for the recommendation from our existing clients. Yes, it has been a tough few months, and the next couple may be similarly trying. However, nobody knows when markets turn or why, so it is important to hang in there and keep the faith.
Thanks for reading the newsletter this month and if you know of anyone who can use investment management services, a referral would be appreciated!
(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)