By: Rick Rubin, CFA
For their affluent clients, many financial advisors build a book of business using mutual funds. Is it because funds have favorable characteristics and offer stronger investment returns? Absolutely not. Mutual funds have many drawbacks!! First, they limit an advisor’s ability to customize a portfolio and effectively manage risk. Second, they add an additional layer of fees, which reduces an investor’s returns. Third, they are inefficient for investors who want to manage their tax bill. Small retail investors have few options and mutual funds may make sense for them. Fortunately, our clients enjoy a customized approach to managing their money. We invest in a diversified portfolio of individual stocks and bonds to meet our clients’ goals. (more…)
By: Chad Meyer, CFA
Greetings from Tufton Capital, where the summer heat is finally abating, the leaves outside our office are quietly changing, and—in keeping with Baltimore business etiquette—Fridays around our halls are taking on a distinctly purple hue.
Of course, encouraging though the view from our window may be, rest assured that your team of investment professionals remains focused on an entirely different landscape. As this newsletter goes to press, the country’s major news outlets are allocating equal front-page real estate to interest rate predictions (when will the Fed wrap these hikes up?), to campaign efforts for a possible Biden vs. Trump rematch and to a foreign policy landscape with uncertainty and sadness spanning from the Middle East to Ukraine. Blessing or curse, there is no denying that these are “interesting times.” (more…)
By: Eric Schopf
The third quarter was punctuated by a substantial move higher in interest rates. After pausing in June, the Federal Reserve increased the federal funds target rate by an additional quarter percent in July to 5.5%. The inversion of the yield curve over the past year reflected the market’s expectations for a bull-steepening move in rates, where short-term interest rates drop to restore financial order. Although the Fed hit the pause button again in September, the market has capitulated and now embraces the idea of a sustained period of restrictive policy. Higher-for-longer resulted in significant rate increases across the yield curve. Maturities of ten years and greater increased the most, reflecting the shift in expectations of the current cycle. Instead of the bull steepening, we are getting a bear steepening with the higher long-term rates. The higher rates created a headwind for stocks, and the Standard & Poor’s 500 index fell 3.27% during the quarter. (more…)
By: Barb Rishel
Many consumers are familiar with the technological advancements and expertise of the L3 Harris Corporation. The company has its roots in both the entrepreneurial spirit of the Industrial Revolution and the earliest days of the space program. From its founding in 1890 as the inventor of the first printing press feeder in Niles, Ohio to its emergence as one of the top defense electronics contractors in the world today, LHX’s inventions are an integral part of our nation’s military capabilities. (more…)
By: Alex Olshanskiy
Bonds, commonly referred to as fixed income securities, play an important role within a well-diversified investment portfolio. They offer a consistent and predictable stream of income, potentially enhancing the stability and financial security of investors. Moreover, the maturity of bonds ensures that investors receive timely cash flows, allowing for strategic reinvestment or to fulfill financial obligations. Traditionally, bonds often represent a potentially safer and less volatile investment avenue compared to the more dynamic world of common stocks. Bondholders, or creditors, hold a senior position in the capital structure, meaning they have a prior claim to company assets in case of financial distress. In essence, bondholders are placed ahead of shareholders in the pecking order, an advantageous position that grants them an additional layer of security. (more…)
By: Chad Meyer, CFA
The case for American Independence, as it was argued some two hundred and fifty years ago, comprises scenes familiar to any schoolchild—British troops in the streets, tea in the harbor and a felt need for self-government. But writing to a friend in 1816, Thomas Jefferson identified a less obvious threat to his young country—one that he viewed as more dangerous than the Redcoats. “I sincerely believe,” he admitted from his Monticello desk, “…that banking establishments are more dangerous than standing armies.” Although July 4th has come and gone, the American investor could be forgiven for keeping that particular founding concern at the front of his mind all summer long. (more…)
By: Eric Schopf
After ten consecutive interest rates increases, the Federal Reserve paused in June to survey the damage. Although there have been some big bumps along the way, the economic landscape appears relatively healthy. Recessionary fears have abated and the stock market is reflecting revised expectations. The Standard and Poor’s 500 Index provided a total return of 8.74% in the quarter, elevating the year-to-date return to 16.89%. The placid landscape has left bond investors more skeptical, with quarterly returns once again sliding into the red. The Bloomberg US Aggregate Bond Index lost 0.84% during the quarter, bringing the year-to-date return down to a positive 2.09%. (more…)
By: Alex Olshanskiy
Microsoft Corporation (Ticker: MSFT) is one of the leading technology companies in the world. It has a market capitalization of $2.53 trillion; only Apple is larger, with over $3 trillion in value. Microsoft’s mission statement focuses on the empowerment of people and organizations worldwide through the use of its company’s products. “We believe in what people make possible” is an apt motto for this innovative technological giant. (more…)
By: Chad Meyer, CFA
As we enter the second half of 2023, equity investors look back at an impressive year-to-date stock market performance with the three most popular indices solidly positive. The S&P 500 is up 17% for the year, the Nasdaq Composite has risen a whopping 32% and the Dow Jones Industrial Average (DJIA) finished up 5%. (more…)
By: Chad Meyer, CFA
In a market that can be difficult to anticipate, there’s a simple pleasure to seeing spring arrive right on time. And if the April weather outside of our office is any indication, it would seem that May is planning to make a colorful entrance, indeed.
By: Eric Schopf
The first quarter of 2023 delivered strong returns in the stock and bond markets. The Standard and Poor’s 500 total return was 7.5%, while the Bloomberg Aggregate Bond Index return was 2.69%, which was a welcome relief following a 13.01% loss in calendar 2022. These strong returns masked the turbulence created by the latest Federal Reserve inflation-fighting interest rate increases. Casualties from the fight included two large regional banks, and the Fed must now contend with both persistent inflation and a vulnerable banking sector. The remedies for each seem to be contradictory.
By: Barb Rishel
Although Qualcomm (ticker: QCOM) is not a household name, its products are an essential part of everyday life. QCOM is transforming the way we work, live and communicate so we can stay intelligently connected using state-of-the-art proprietary semiconductor chips and software. QCOM is the world’s leading supplier of chipsets for mobile phones, tablets and modems, and it receives a steady stream of royalty revenue from their extensive wireless patents.
By: Alex Olshanskiy
In a world where inflation is uncertain and a recession seems very possible, productivity is essential for growth and stability. The U.S. Bureau of Labor Statistics states “with growth in productivity, an economy is able to produce—and consume—increasingly more goods and services for the same amount of work.” One potential catalyst to limit the possibility of “low economic growth” and perhaps a recession comes from advancements in the technology sector—more specifically—Artificial Intelligence or AI.
By: Chad Meyer, CFA
For all of its joys, the holiday season also has a well-documented history as a source of stress. And while they couldn’t all have been hosting their in-laws for an extended visit, American investors certainly bore the brunt of that phenomenon this past December. As trees were lit and skis were waxed, market commentary ranged from stunned disbelief to gallows humor. Perhaps nowhere was the mood more accurately captured than in the Wall Street Journal’s Christmas Eve headline: “On the Bright Side, The Market Closes Early Today.” Bah humbug, indeed.
By: Eric Schopf
The year 2022 was defined by broad inflationary pressures and the Federal Reserve’s efforts to reestablish price stability. Two additional interest rate hikes during the fourth quarter demonstrated the Fed’s resolve. The federal funds rate stood at just 0.25% as recently as March, but following seven rate increases, the rate closed the year at 4.5%. The goal of all central bankers during an inflationary cycle is to engineer a soft landing by reducing inflationary pressures through higher interest rates. The trick is to raise interest rates high enough to contract demand without tipping the economy into recession.
