Broker Check

Short Term Pessimism Following Annual Federal Reserve Meeting

| August 30, 2022

Returns after Volatility:

Interest rates are heading higher:

The reality of interest rates is simple, despite the on-going rhetoric that attempts to overcomplicate its narrative. If the expectation for economic growth
is that it will notably surpass pre-COVID levels, and sustain a trend thereafter, then interest rates are headed higher. The Federal Reserve’s dovish stance
to maintain interest rates near zero has started to appropriately fizzle and there remains no meaningful basis to assume market driven interest rates need
to remain low. The observed fact that the Fed does not directly control the 10-year yield, nor does it directly control borrowing costs for consumers (i.e.,
mortgages, car loans, personal loans,…etc.) is an important consideration in the current demand heavy environment. From an observed historical basis,
the argument for higher interest rates during an economic recovery provides tangible evidence that we can use. Yields rise, or fall, based on the pace of
GDP (Gross Domestic Product) growth. This is a healthy occurrence that allows the economy to substantiate higher borrowing costs amidst an
environment of strong consumption demand, ample private job creation, and [most likely] a robust global equity market. Although less accommodative
monetary policy may generate a minor short-term shock factor to equity markets, we remain in favor of aggregate exposures within sectors and equities
that maintain relatively attractive valuations alongside strong cash flow metrics. The added uncertainty from further COVID variants may be the norm over
the next 12 months and we would argue that added risk within portfolios for investors rests more so within fixed income assets rather than equity assets.
All of this is to suggest that we should not be fearful, nor complacent, at the fact that interest rates may look drastically different 12 months from now.


10‐Year Annualized Rolling Returns:

The chart below is a continuation from our 2014 series and tracks the 10‐year rolling annualized returns of the Standard & Poor’s (S&P) 500 Index.
Each year represents returns from the previous ten years, and it includes the year presented. For example, the ten‐year annualized return through
2019, which is 13.55%, exhibits the annualized rate of return produced by the S&P 500 starting in 2010 all the way through 2019. There are two
major takeaways from the chart below:

1. Historically, once the long‐term mean has been breached on the up‐side, annualized returns have remained elevated above the mean for
an average of almost 18 years.

2. Historically, once the long‐term mean has been breached on the downside, annualized returns have remained subdued below the mean for
an average of almost 10 years. This is significantly lower relative to the timeframe on above mean returns.
We remain highly optimistic on the general trend exhibited by long‐term annualized returns. Equity markets have experienced such expansion
before and we’re cognizant of the possibility for it to reoccur over the long‐term.

Investment advice offered through CX Institutional, a registered investment advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.

All data is sourced from Bloomberg, through the release of monthly figures from the U.S. Bureau of Labor Statistics or from the Federal Reserve and any of its affiliated regional locations.