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.

By traditional standards, the second quarter of 2023 was a success. May’s inflationary jitters notwithstanding, the S&P 500, Dow Jones and Nasdaq indices all turned in impressive gains over the three-month period, notching growth of 9%, 4% and 13% respectively. This strong across-the-board performance was largely due to a nice finish, with all three benchmarks putting in especially strong results for the month of June. The reason? An early-summer signal that the Federal Reserve may be prepared to end its campaign of interest rate hikes as inflationary pressures begin to wane. President Jefferson was right. A single “banking establishment” really can be more powerful than a squadron of soldiers.

Given its central role in the market’s most recent rebound, it’s no surprise that the Fed now serves as a fault line between the gloom and doom camps of market commentary. On the bull side of the ledger, some analysts point to indicators of a continued strong economy even after ten interest rate increases over the past fifteen months (and hopes that these increases are seeing their final days). By contrast, others read a delay when looking into the tea leaves, predicting the Fed will gather more data (particularly on inflation) and keep the rate hikes going. Under this view, investors should gear up for the volatility that may ensue if the Fed fails to pause after the July hike that the markets are anticipating. If those competing forecasts leave you feeling uncertain, take comfort in knowing you are not alone. Market “breadth” (which is discussed throughout this newsletter) continues to be quite weak, with gains disproportionately concentrated in a select few “crowd favorite” companies, specifically the “Magnificent Seven”.

Time will tell which of these stances is correct. But at risk of sounding like a broken record, allow me to note a trait common to all these perspectives that is not correct—namely, an undue focus on the short term. Here at Tufton Capital, our decisions don’t turn on what bureaucrats may or may not do by the month’s end or where the broader market could be at year end. Instead, they focus on whether or not a given investment is compelling enough to grow your capital, in any market, across the long term. And while this conservative, value-driven approach may strike some as quaint (Jeffersonian, perhaps?), it has successfully driven both our thinking and client outcomes since 1995. So as the summer rolls on, your team of investment professionals invites you to sit back, relax and tune out the near-term forecasting. We remain honored by the opportunity to safeguard your financial independence, one careful investment at a time.