No bones about it: 2022 has been an extremely tough market year, and the latest downturn at the end of the third quarter pushed us into a bear market within the major stock indices. A bear market describes a prolonged drop in stock prices where the indices drop by 20% or more. Our advisors have lived through many different market cycles, from Y2K to the Dot-com bubble, September 11th to the Great Recession, Russia invading Crimea, Brexit, COVID, and the current period of high inflation. We have seen the markets swing from excessive enthusiasm to extreme pessimism. Through each of these periods, Wall Street has encouraged investors to make the decisions of six months ago – buying high and selling low, and staying out of the market as it begins to recover.

One in seven Americans has student loan debt, and over 90% of that debt is held by the federal government. This made the White House’s recent reforms to its student loans impactful for roughly ten percent of the population. It is important to note that these changes only apply to federal borrowers, and not to privately held loans.

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” –Seth Klarman

We hope this note finds you and yours doing well. As summer draws to a close and the school year begins, we have been reflecting on a crazy year – from the drawdown of the pandemic to the Russian invasion of Ukraine, stubbornly high inflation to daily political drama, and plenty of stock market volatility into the bargain.

What is causing this volatility? The markets have been shaken this year by a flurry of investor worries. For one thing, inflation is at its highest rate in decades. This has forced the Federal Reserve to kick off a monetary policy tightening campaign, which includes increasing interest rates, and the markets are trying to figure if that’s doable without tipping the country into a recession. On top of these fears, we are dealing with geopolitical factors: strict pandemic lockdowns in China, Russia’s invasion of Ukraine, and ongoing political conflicts within the United States.

We hope you are looking forward to a well-deserved mental break with the tax filing deadline coming up. Spring cleaning is on the brain – we often get asked by clients, “how far back should I keep my financial documents?” Whether you are inundated by paper files or just want to avoid getting there, let’s walk through some general recommendations.

We have received many messages from clients over the past few weeks about the conflict in Ukraine and how it may affect your portfolio. With things unfolding at a rapid pace, we wanted to reach out with the latest information and our recommendations.

A common topic in our newsletters these past couple of years has been how steady and positive the markets have been over this time. We have cautioned against expecting that to continue into perpetuity, and we saw a chink in the armor this past quarter. Since the first quarter of 2020 and the start of the pandemic, there had not been a single down quarter. Starting in September, we finally saw some volatility. September has consistently been the worst month for US stock returns, historically. From 1926 through 2020, it has been the only month to average negative returns. However, overall, the markets have continued their run-up. The Dow rose from 18,000 to 34,000 over the past year and a half.

I hope this letter finds you doing well and staying cool with the recent heatwaves in the Pacific Northwest and around the country. We have just finished the second quarter of 2021, and already this year has had a great start from a return standpoint, much of which is owed to a huge upswing in GDP as the US reopens. In their midyear report, Blackrock shared this chart showing trends in GDP since just before the pandemic, as well as estimates for the next year or so. You can see how early 2020 hits a bottom for all countries, but if you were to take that data point out, the trend line is far smoother, suggesting that the pandemic has served more as an “interruption” than throwing future economic data fully off track.

It finally seems like we are in the end stages of the pandemic, so what’s left is to figure out how this will wrap up. How will local restrictions adapt to the downturn in spread that vaccination causes, and how quickly will that happen? When will it be safe for schools to return to 100% in-person teaching, and when will kids be able to get their own vaccinations? The questions that confront us now are so much better than the fearful questions we asked ourselves at this time last year.

We’ve been relieved to see the progress of vaccination steadily increase throughout the US, and particularly in Oregon, as it looks like we may at last be heading for the end of the pandemic. The vaccination rate in the US has reached 2 million doses a day, which only a couple of months ago seemed impossible. Despite the pandemic, we have been busier than ever in service to our clients, and as a result have been on the hunt for a new team member for over a year. That search ended just over a month ago when we recruited a new associate advisor.