I hope you all are having a great summer!  Clearly the market could do more to help, but alas that is not the case.

It’s amazing how quickly sentiment can change. While there were some rumblings of stormy weather late last year, the market hit six new all-time highs from mid-November until the last one on January 3, 2022. Now just six months later, we are surrounded by tremendous negativity – inflation, rising interest rates, and the on-going war in Ukraine. In June, consumer confidence fell to a low we haven’t seen since the early 1980s – worse than during the beginning stages of the pandemic; worse than the depths of the financial crisis; and much worse than the 9/11 and the dotcom bust. Are things really that bad?

I would argue that the current economy and the future earnings power of corporate America is not the worst in decades. Instead, I think the sentiment pendulum has swung too far and given some time for greater objectivity it will swing back. Is that June reading a low-water mark? No one knows – consumer confidence could continue lower. But given the past 50-years, it’s reasonable to think we’re a lot closer to the bottom than the top.

This chart also provides some hope for much better days ahead. Over the last eight troughs in consumer sentiment, the subsequent 12-month return in the S&P 500 averaged almost 25%.

Will that happen this time?  I’m not one to predict future outcomes and there are still headwinds around – rising interest rates and higher inflation than anyone wants. But as I have said many times over the last few years, corporate America is very strong AND has gotten very good at operating during ever-changing circumstances. I think that will continue to be the case in the years ahead.  Despite the market’s drop over the past six months, many companies continue to pay dividends, increase their dividends, and buy back their stock. All these activities demonstrate a company’s strength and boost shareholder value.

Here’s to the pendulum swinging back and to a great rest of your summer.  Let me know if you have questions or would like to chat.