Market & Economic Commentary: Q3 2022

Third Quarter in Review

The past few months have been an emotional ride for many investors, as stocks and bonds offered glimpses of hope early in the third quarter, only eventually to succumb to the continued pressures of persistent inflation, hawkish central banks, rising interest rates, weak economic data, and geopolitical tensions.

The third quarter began on an optimistic note, with the S&P 500 Index up an impressive 9.22% in July amid hopes the Federal Reserve might be nearing the end of its rate-rising cycle. But by mid-August, data suggesting the onset of a global economic slowdown, despite persistent inflation, combined with hawkish comments by Federal Reserve Chair Jerome Powell at the central bank’s annual symposium in Jackson Hole, and another 75-basis point hike in rates in September, were enough to end the summer rally. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite each respectively tumbled into bear market territory as stocks declined more than 4% in August, and more than 9% in September, ending the quarter down nearly 5%. Year to date, the S&P 500 is down -23.87%, the DJIA is down -19.72%, and the NASDAQ is down -32%.

International developed and emerging markets posted similar losses.1

Typically, investors rely on a fixed income to provide some stability in times of volatile equities markets. This year has been an exception. Global bonds have slumped into their first bear market in decades, driven by pressure from an aggressive global shift toward tighter monetary policy. Central banks have simultaneously hiked rates to contain rising inflation. The Bloomberg Global Aggregate Total Return Index of government and investment-grade corporate bonds has fallen roughly -20% from its recent peak, the most significant drawdown since its inception in 1990. 2

Inflation, the Fed, and the U.S. Dollar

Data suggests the overall pace of inflation has cooled a bit, led by a significant decline in gasoline prices over the quarter. However, recent Labor Department CPI reports indicate that higher inflation levels have become more embedded across the overall economy, particularly in food and housing. Consumers have had some relief when filling up their gas tanks, though not when filling up their grocery baskets or paying rent. As long as that persists, this issue will continue to impact markets.

Federal Reserve officials have pledged to keep ramping up rates until they see clear signs of slowing price growth across the economy. The Federal Open Market Committee (FOMC) - the panel of Fed officials responsible for monetary policy - hiked its baseline interest rate by 0.75 percentage points for an unprecedented third consecutive meeting in mid-September and is expected to do so again in November. The Fed’s rate hikes have slowed the housing market, curbed some hiring, and weighed on economic growth. These interest rate increases, along with normalizing supply chains and falling gas prices, should eventually lead to lower inflation.

Meanwhile, due to a combination of the Federal Reserve’s raising rates and a host of global economic concerns, there has been a historic surge in the strengthening of the U.S. Dollar relative to other currencies. As the dollar is the main currency used in global trade (commodities like food and oil are usually priced in dollars), this has had a widespread economic impact. One benefit to U.S. consumers is that this makes imported goods cheaper; the flip side is that U.S. exports become more expensive for international buyers, who tend to curtail their purchases. This can wreak havoc with the profits of U.S. companies that do a lot of business overseas (roughly 40% of the revenue for S&P 500 companies comes from outside of the U.S.). The expected decline in earnings can put downward pressure on valuations - causing the price of domestic stocks to fall. It also has an inflationary impact across international markets, broadly causing investments to decline. In short, it’s good for your pocketbook but not for your portfolio.

A Resilient Economy

Despite the significant headwinds created by inflation and the Fed, the U.S. economy entered this turbulent period in much healthier shape than in past recessions. Unemployment is historically low, and company balance sheets are mostly strong. Furthermore, banks, which were the weak link in the 2008 crisis, are generally well-funded and free of the solvency concerns that have frozen capital markets in the past. Indeed, fears that the Fed’s attempts to cool the economy may lead to higher unemployment are balanced by the fact that so many companies struggled to hire workers in the past year that many have determined to slow future hiring while hesitating to let workers ago as readily as in the past. In a similar fashion, a cooling of the residential real estate market might offer a bit of relief to homebuyers who have been shut out by the bidding wars that erupted during the pandemic.

Of course, there remains a risk that the Fed will raise rates too far, resulting in a prolonged recession. However, to date, the economic data point to a slowdown that is more likely to be broad but perhaps not so deep.

Final Thoughts

Recent performance has been disappointing. However, this year has served as a compelling reminder of why so many investors seek professional advice and guidance. Markets such as these can give rise to powerful emotions that tend to crowd out long-term thinking, and many investors act in response. Importantly, some of the best days in the market are clustered among some of the worst days. Looking at market data going back to 1928, being out of the stock market for just the best 30 trading days would have resulted in half the return over that period.3 We have no reason to believe that this period differs from past market downturns. Thus, the prudent course is to stay invested and not miss any of those critical “best days.” 

In this environment, putting aside fear and calling on much-needed perspective can dramatically help improve the chances of staying on the path you have charted and eventually reaching your long-term goals. We are searching for new opportunities offered by the current markets that we believe will best position our clients to benefit from the markets’ recovery. As always, we will monitor economic developments and markets on your behalf and keep you apprised.

Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not

reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.

S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.

Dow Jones Industrial Average (DJIA) Is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

The Nasdaq Composite Index (NASDAQ) measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies.

MSCI World Ex USA GR USD Index captures large and mid-cap representation across 22 of 23 developed markets countries, excluding the US. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes.

Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.

Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging market issuers. Index is USD hedged.

© Morningstar 2021. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.

The Kaminsky-Silverman Group utilizes Symmetry Partners, LLC (SP), which is a third-party service provider that supplies market data and assists in creation and monitoring of factor-based investment models. SP is also an investment advisory firm registered with the Securities and Exchange Commission. All data is from sources believed to be reliable but cannot be guaranteed or warranted. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non- investment related content made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.

Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results.

This material is confidential and is provided for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your investment. Any opinions, expectations and projections within this document are solely those of the Portfolio Manager(s) identified, and do not necessarily represent the viewpoint of Shufro, Rose & Co., LLC or other Portfolio Managers at the firm. This report was prepared by Shufro, Rose & Co., LLC and is presumed to be correct. Shufro, Rose & Co., LLC is an investment adviser registered with the Securities and Exchange Commission. ADV Part 2A is available upon request or at https://adviserinfo.sec.gov/. Please contact Shufro, Rose & Co., LLC at (212) 754‐5100 with any questions.

Symmetry Partners, LLC, is an investment advisory firm registered with the Securities and Exchange Commission (SEC).

The firm only transacts business in states where it is properly registered, or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non- investment related content made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice. Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results.

Index Disclosure and Definitions All indexes have certain limitations. Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance. Actual performance for client accounts may differ materially from the index portfolios.

S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization. Dow Jones Industrial Average (DJIA) Is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The Nasdaq Composite Index (NASDAQ) measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market, and includes over 2,500 companies. MSCI World Ex USA GR USD Index captures large and mid cap representation across 22 of 23 developed markets countries, excluding the US. The index covers approximately 85% of the free float-adjusted market capitalization in each country. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes. Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage- backed and asset-backed securities, all with maturities of more than 1 year. Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government- related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers. Index is USD hedged.

© Morningstar 2022. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.

1  Morningstar Direct, as of Oct 1st, 2022

2  Reynolds, G. C., & Flynn, F. (2022, September 2). Global bonds enter first bear market in generation after 20% plunge from 2021. Bloomberg.com

3  Vanguard calculations using S&P data from Macrobond, Inc., as of December 31, 2021. Based on daily price returns, the U.S. stock market returned an annualized 6.2% for the period from 1928 through 2021. If you missed the 30 best trading days, the annualized return would be 3.3%. The S&P 90 Index was used as proxy for the U.S. stock market from January 1928 through March 1957, and the S&P 500 Index thereafter through 2021. The returns did not include reinvested dividends which would make all figures higher.

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