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First Quarter Newsletter 2022

  March lived up to its “mad” reputation this year, bringing a volatile first quarter in the investment markets to a close. While a welcomed rally in U.S. Equity markets, with the DJIA up 2.3% for the month, helped claw back some of its losses, the bond market suffered one of its worst months. Peter Schiff of Euro Pacific Capital, in his 04/11/22, “March Madness in the Bond Market,” reported it was the worst quarter in over 40 years for bonds.[1] As the debate continued whether 2022’s rapidly growing inflation was transitory and would right itself as we continue to emerge from COVID, or was systemic, requiring a strong response from the Fed, Dorsey Wright reported, “concerns about tightening monetary policy were compounded by the Russia/Ukraine conflict which threatened geopolitical stability amid historically high inflation,” in his Daily Equity Report of 04/07/22.[2] The conflict itself and retaliatory economic sanctions from around the globe quickly accelerated the rate of inflation and made it clear that the Fed would need to act sooner rather than later. In March, it raised interest rates for the first time since 2018, telling us to expect more tightening to come.

  The late March stock rally helped the S&P make up ground, but it finished the quarter down about 5%. The NASDAQ lost more than 9%, with Technology taking a significant, unexpectedly brutal hit beginning mid-January. While a sector rotation would be expected in the new year with COVID in its rear view, the Fed seemed ready to raise rates, and investors sought value in a highly over valued market, the sell off in technology seemed irrationally harsh. The CEOs and CFOs of several strong companies in this sector who enjoyed superior revenue growth and stock performance, reporting previous quarter earnings beating Street expectations, must have felt like the #1 and 2 seeded basketball teams in the NCAA tournament that were sent packing before the Elite 8—wondering how the stunning drop in their stock the “reward” for such performance.

  Financials had a nice run up during the first half of the quarter, as the hunt for value above growth took hold. This sector normally does well when rates are rising, but the tide turned as inflation continued to rise, and the Russia/Ukraine conflict brought increasing concerns about global economic deterioration. Energy has been the standout sector for the first quarter. Below are the S+P 500, DJIA (Dow Jones), and NASDAQ stats, with YTD Top and Bottom 3 Sectors, for weeks ending 4/1, and 4/14, as seen from Franklin Templeton’s “What Happened Last Week,” by Griff Curtin:[3]

                04-01-22      WEEK        YTD        1 YEAR

                S&P               +0.08%      -4.3%      +14.7%

                DJIA              -0.12%      -3.7%      +7.0%

                NASDAQ      +0.66%     -8.7%      +6.5%

                TOP 3 SECTORS: ENERGY +40.2% ; UTILITIES +6.3% ; CONSUMER STAPLES +0.2%


                04-14-22     WEEK        YTD         1 YEAR

                S&P              -2.11%      -7.5%      +6.8%

                DJIA              -0.78%      -4.7%      +3.1%

                NASDAQ      -2.62%      -14.5%    -4.3%

                TOP 3 SECTORS: ENERGY +45.2% ; UTILITIES +7.1% ; CONSUMER STAPLES +3.1%


  As difficult as the first quarter has been for equities, the Aggregate Bond Market was down almost 7%, providing no safe-haven for investors. Peter Schiff reported, “there was a little March Madness on Wall Street . . . The municipal bond market just posted its worst quarter since 1994, down more than 5%.” (More about Munis and a buying opportunity later.) The Fed raised rates by 25 basis points in March and signaled 6 more hikes were likely this year, with possibly 4 more in 2023 (Many economists are interpreting the additional hikes as a worst-case scenario to rein in inflation.) It all remains uncertain in Mr. Schiff’s opinion, saying, “rates 5% below the rate of inflation, if inflation stays at 7.5%, and rates go up by 2.5%,” will be enough to bring it under control . . . “To do that, rates are supposed to be restrictive, which has always meant ABOVE the rate of inflation, not way below.” Schiff argues that the rate hikes being discussed will put the economy into a mild recession but will not be enough to get the job done. Schiff reasons that supply and demand both need to be considered. A recession will drive down demand for products and services, but unless supplies increase as a result, we run the danger of experiencing STAGFLATION, “a phenomenon of the 1970s that was even uglier than an orange leisure suit.” In this scenario, supplies continue to fall as fast as, or faster, than demand, driving up the cost of goods and services despite the recession.[4]

  Many analysts remain optimistic that equities may finish the year in positive territory; but warn the Fed and investors must navigate carefully through ongoing cross winds. Concerns are:

  • Employers not finding enough employees, the need to pay more to those willing to work and passing on those increases to consumers.
  • Productivity gains held down by massive government spending. Proposed legislation, while tempered or postponed presently, could include a large wealth tax, which could compel US Entrepreneurs to take their businesses elsewhere.
  • While the Fed is pivoting to a hawkish stance battling inflation, it may need to raise rates beyond the “neutral point” (a level which neither stimulates nor slows the economy.) Recently it was acknowledged a 75-basis-point raise should not be ruled out. Some economists think it will be very difficult to avoid a deeper recession if this worst-case scenario is necessary.[5]

  Much remains unclear about the economy and investment markets as we move through the next quarter. April has seen more weakness in equities and bonds alike. We are vigilant, on the lookout for buying opportunities that may seem uncomfortable to take advantage, and we are nimble, as we navigate a minefield of risk. This is a painful and stressful time for investors, but from times like this come new Bull markets. On the Muni Bond front, Cumberland Advisors (C/A) recently reported buying long term investment grade Munis at 4% federal tax-free yields. After taking a steep dive in early April, reminiscent of the 2-week sell off in March 20’, C/A reported this is the best opportunity in 5 years to lock in attractive yields in long term bonds, with the potential for capital appreciation as inflation and increasing fed tax make the return on Muni bonds increasingly attractive.[6] And on their website, Lord Abbett just released an update on the same subject, making a case for opportunity with data from Bloomberg 10-Yr Municipal Bond Index Cumulative Return. They illustrate that drawdowns in the Muni market have been followed by quick recoveries, historically creating attractive entry points for long-term investors.[7]

  Our game plan of late has been both offensive and defensive. We see potential buying opportunities for which we have cash ready when the time is right. We continue to make decisions to sell investments whose risk levels have, for whatever reason, violated our parameters, knowing in the future we may want to buy again. We continue to place our emphasis on mitigating portfolio loss as much as possible while still participating in the Equity markets. We are committed to hard work and vigilance to shepherd our clients’ investment assets through this difficult time. We know how uncomfortable the past quarter has been and expect the possibility of more volatility in coming months. Please reach out to us with any concerns or changes of investment objective you may have.

  We are reminded as we take time to work on our yard, lawns, and gardens, that the tough work we are doing now will prove its value in the long run. In a better climate, the weeding will be beneficial, and the seeds we’ve planted will blossom and grow. Enjoy the rest of spring; we look forward to touching base again in early summer.

                                                                                                                                                Warmly, The Galarneau Group     


Dow Jones Industrial Average: The Dow Jones Industrial Average is an unmanaged, price-weighted index of 30 large capitalization stocks with dividends reinvested.


NASDAQ Composite: The NASDAQ Composite is an unmanaged, market capitalization weighted index of stocks listed on the Nasdaq Stock Exchange, reported as price return without reinvestment of dividends.


S&P 500: The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged, market capitalization weighted index of 500 widely held stocks, with dividends reinvested, and is often used as a benchmark for the U.S. stock market.

Indexes are unmanaged and cannot be invested into directly.


[1] Euro Pacific Capital, Peter Schiff, “March Madness in the Bond Market,” 4/11/22.

[2] Dorsey Wright, “DWA Daily Equity & Market Analysis,” https://www.dorseywright.com, 04/07/22.

[3] Franklin Templeton, Griff Curtin, “What Happened Last Week,” 4/1/22 & 4/14/22.

[4] Euro Pacific Capital, Peter Schiff, “March Madness in the Bond Market,” 4/11/22.

[5] Euro Pacific Capital, Peter Schiff, “March Madness in the Bond Market,” 4/11/22.

[6] Cumberland Advisors, “Markets Playing Defense-Cumberland Advisors Week In Review,” https://www.youtube.com 4/15/22.

[7] Lord Abbett, “A Longer-Term View: Municipal Bond Performance,” https://www.lordabbett.com/

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