{"id":232021,"date":"2022-07-12T19:15:05","date_gmt":"2022-07-12T19:15:05","guid":{"rendered":"https:\/\/aptuscapitaladvisors.com\/?p=232021"},"modified":"2022-12-20T22:17:38","modified_gmt":"2022-12-20T22:17:38","slug":"aptus-capital-quarterly-newsletter-q2-2022","status":"publish","type":"post","link":"https:\/\/aptuscapitaladvisors.com\/aptus-capital-quarterly-newsletter-q2-2022\/","title":{"rendered":"The “Idea in Real” Market"},"content":{"rendered":"

The market is<\/span>\"\"\u00a0learning that the economic cure of last year is now quickly becoming the cause for something else. The ramifications of unprecedented fiscal and monetary responses employed to combat a recession during the global pandemic should not come as a surprise to investors that a bill would come due soon. The question is \u2013 are we fully paid up or is there still an outstanding balance? The odds point to the latter.<\/p>\n

Coming off of a near-decade long period of what felt like \u201cfree lunches\u201d \u2014called quantitative easing\u2014 investors are quickly learning that the environment today is much different than the one they\u2019ve been accustomed to. As we transition into a quantitative tightening period, many investors were unprepared for the quixotic quest that they had to navigate in \u201922. Multi-decade high inflation appears to be more structural than transitory, coupled with the fastest monetary tightening policy in recent memory. And all of this is in the face of slowing growth and a bear market.\u00a0<\/span><\/p>\n

After recently traveling to south Spain, where I would routinely pass wind turbines on every train ride, I was reminded of another quixotic quest set forth by someone in the 16<\/span>th<\/span> century \u2013 Don Quixote and Sancho Panza. This novel describes realistically what befalls an aging knight whose battles were more metaphorical than real, as he was bemused by readings of historical romances. The battles entrancing investors today are not metaphorical by any means, yet they feel like they are being fought with weapons that appear to be based off of techniques used in the 1500s \u2013 leaving investors\u2019 sole protection to be weaker than Quixote\u2019s self-made antique armored suit.\u00a0<\/span><\/p>\n

There has been no place to hide in the market today, as portfolio positioning was more about mitigating risk. Bonds, the \u201csafe\u201d asset class, were not the chivalrous knight that comes in to save the day. In fact, since 1977, every year that stocks have been down, bonds have appreciated in value.\u00a0<\/span><\/p>\n

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When inflation is the primary macroeconomic driver, stocks and bonds tend to correlate as both prefer low-inflation environments. Given the carnage, the most impactful positioning was avoiding the areas of the market that imploded, i.e., the Ponzi stocks. Given performance in both equities and fixed income, the 60% stocks \/ 40% bonds portfolio has never produced a worse year-to-date return than it has this year.\u00a0<\/span><\/p>\n

At the halfway point of this year, \u201922 continues to produce some of the most extreme returns in history.\u00a0<\/span><\/p>\n