The close of the second quarter for the equity and bond markets provided no relief to investors; the retreat from year-end all-time highs that began at the start of 2022 only accelerated. According to Morningstar, their stock market index dropped an additional 16.9% to bring year-to-date declines to 21.3%. Similarly, the Dow Jones Industrial Index showed quarterly losses of 12.7% and year-to-date losses of 16.14%.
Bonds fared equally poorly, as the benchmark 10-year Treasury Bond has suffered a 20-plus percent drop year-to-date. Having both the bond and stock markets decline in two consecutive quarters at the same time has happened only once before since 1981.
The ostensible “reasons” for these short term outcomes have been well vetted in the financial press; rising inflation, rising interest rates, the Russian invasion of Ukraine and supply chain shortages to name a few. All have played a role to depress the equity and bond markets. We put “reasons” in quotes because the rationales for short term market movement up or down rarely apply to the long term fundamentals of the individual companies in the market indexes. But the fact is that the rising and falling “tides” in the markets, however short term in duration, tend raise or lower all “boats” equally, regardless of their prospects.
At Penobscot, we focus our portfolio choices on companies, not indexes. We know that at some point a company’s stock price will follow its long term earnings and dividend growth. We have to accept short term market volatility as a given in the investment dynamic, understanding that time will bear out our confidence that quality companies will rise on their own “tide”, floating on consistently higher earnings and dividends. Our commitment to our clients’ and our own portfolios is two-fold; to relentlessly seek out those quality companies and to have confidence in our process for selecting those companies.
To that end, we know these markets will turn positive at some unknown future date. They always have. Until they do, we will continue to use this period to focus on the companies we own, adding to or reducing positions as their long term fundamentals and the needs of your portfolios warrant.
As always, please contact us with any questions, comments or concerns.
