“All you need is the plan, the road map, and the courage to press on to your destination”–Earl Nightingale
The theme for 2022, which we identified in January, was one of a Federal Reserve intent on tightening to fight inflation. Year-to-date the Fed has raised rates five times and the Fed Funds rate has risen from 0.25% to 3.25%. The Fed indicated in its latest report that the Fed Funds rate may reach 4.4% by December, and 4.6% in 2023. While we have not yet seen signs of inflationary pressures easing, we expect to notice progress in the coming months.
The US economy has already posted two quarters of negative GDP, which fits the definition of a recession. We expect the economy will continue to slow as the Fed tightens and works to temper inflationary pressures. As the economy slows corporate earnings are likely to moderate. This will keep a lid on the ability of the stock market to move higher until there is more certainty surrounding future earnings growth. While current valuations are not excessive, the challenge is the unknown path of the recovery.
Companies owned in client portfolios have been deploying excess cash flow in shareholder friendly ways. Of the 38 companies on our holdings list, 34 pay a dividend. Of those 34 companies, 32 have raised their dividend in the last 12 months by an average of 13.2%. Additionally, 30 of the companies on our holdings list have repurchased stock and reduced the number of shares outstanding. Many of our holdings have used excess cash flow to make acquisitions that enhance their businesses. Our point in highlighting these activities is that the companies you own are taking steps to create shareholder value that should be rewarded over the long term.
Bear markets create significant anxiety in investor minds, but we know markets do recover with the economy. We are focusing on our disciplined investment approach to help lessen the volatility client portfolios may otherwise experience. Money that clients need to meet living expenses in the intermediate term is invested in cash, money markets, or short-term treasury bonds. Many clients may have noticed that earlier this year we began purchasing short term treasuries as rates began to rise which we did to capture better yield. We are also focusing on adding to select equities where we think selling is overdone.
We look forward to speaking with you in the coming weeks should you wish to discuss specific steps taken in your portfolio. Thank you for entrusting Ayrshire Capital Management LLC with the management of your money.
JM Sam Nevin, Jr.
W. Joseph Ryan III
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