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July 2022

Dear Clients and Friends,

The October-December quarter has historically been the strongest quarter for the stock market. The 2021 version began much the same way. Powerful corporate earnings growth fueled a five-week rally to kick off the quarter. The rally was strong enough to push small and midcap stocks shooting upward out of their months-long sideways trading range. But the emergence of a new strain of Covid-19, Omicron, took the wind out of the market’s sails in mid-November. The breakout failed as quickly as it started. Stocks have made little progress since. This chart of the small-cap index highlights the October rally and subsequent fall (left). The chart on the right presents the ongoing downtrend in markets outside the U.S. where Covid-related issues continue to hamper growth. This weakness and choppy trend in key areas of the market proved challenging for certain investment strategies.

October rally on small-cap index

Ongoing downtrend in markets outside the U.S.

The U.S. market, more broadly, has performed better than these two charts show as the largest of the mega-cap growth stocks that drive the U.S. market, Apple, continued to be strong. Those growth stocks, very expensive by historical standards, began to struggle in late November as the Omicron news came out. Also, the Fed’s inflation-fighting posture fueled a surge in short-term interest rates. The rise in interest rates generated a shift in market leadership to interest-rate and inflation-sensitive stocks found in the financial, energy, and industrial sectors. Those sectors took the baton and kept the S&P 500 generally on its upward path.

This shift in market leadership has generated quite a bit of volatility. The weekly chart below shows the good weeks (clear bars) and bad weeks (red bars) in the market. Note the back-and-forth nature of the market over the past two months (boxed). And the spike in volatility (boxed at the bottom of the chart).

Volatile market

The extraordinary market fuel unleashed by the Federal Reserve in the summer of 2020 has led to issues that still largely define the economy, namely a marked shift in supply and demand for goods, services and associated labor. While supply shortages have generated some near-term inflation, the bigger systemic inflation threat comes from rising wages. Since summer 2020, the Fed’s easy money has led asset prices to broadly take flight, leading some 3-4 million workers to choose earlier retirement and leave the labor force. Millions more have held back from re-entering the labor force for a myriad of covid-related issues – e.g. childcare, fear of sickness, and many other concerns. This comes on top of a sharp decline in immigration (another source of labor). These three factors have hollowed out a significant chunk of the labor force leading to a huge wave of unfilled jobs and resultant wage hikes from employers desperate to hold on to their existing workforce. How this evolves will be a big economic story in 2022 and key determinant of inflation, thus interest rates.

Bond investors are trying to sift through the labor upheaval while adjusting to a Federal Reserve that is pivoting to taking its foot well off the gas pedal. The result so far has been a sharp rise in short-term interest rates, where the Fed has the most influence, with lesser increases further out in time (chart below).

Interest rates variation

The smaller increases out in time suggest investors believe inflation will ease and interest rates will remain quite low by historical standards. Indeed, interest rates longer-term have only now returned to where they were pre-pandemic.

Longer-term interest rates

2022 should mark a return to normalcy in many aspects of the economy. The lingering dislocations caused by the pandemic and associated monetary policies, however, will play a major role in how markets react. As markets and investors adjust to this ‘new normal’, volatility will likely remain high. In hindsight, it is extraordinary to look back and see that Covid-19, which still affects so many people in ways great and small, really had only a five-week impact on the stock market in March 2020, at least in terms of market fear and selloff. The monetary policies arising from the pandemic are only now, two years later, beginning to ebb. Those policies have had a huge and possibly lasting impact on markets and economics.

To future profits,

Don Lansing
Chief Investment Officer.

Garrett Beauvais
Portfolio Manager

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Thank you for your time and interest!

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About MarketTrend Advisors

MarketTrend Advisors is an investment advisory firm that specializes in the trend-following strategies outlined in this report. We offer a variety of strategies that can be used to build portfolios to meet almost any investment objective. We divide our strategies into two main groups: "Long" strategies and "Trend" strategies. The Trend strategies follow the trend up or down. The "Long" strategies are typical investment portfolios that usually remain fully invested, potentially raising cash or moving to income-focused investments when the market is weak. We have a variety of "Long" strategies depending on how aggressive or conservative you want to be. These strategies will make their money when the market is moving higher. The "Trend" strategies will provide protection in a down market and add to gains in an up-trending market. By combining the Long and Trend strategies you get all the components needed to build a successful long-term portfolio:
  1. A portfolio invested in the best performing indexes, ETFs, or stocks
  2. Substantial exposure to global growth through international holdings
  3. Protection for your overall portfolio from down-trending markets When the market is going up, you benefit as aggressively as you wish.
When the market is going down, your assets are protected, or even profiting. Over time, you will see returns that exceed the market if only by AVOIDING market corrections and bear markets. By using one of our more aggressive long strategies in an uptrend, you will see even better performance.

  1. MarketTrend Advisors, Ltd. is an independent registered in the States of California, Florida, New York and Texas.
  2. Other Securities Industry Affiliations or Activities. MarketTrend Advisors, is not registered as a broker or dealer, nor do we have any partners or employees who are affiliated with any broker or dealer. See Form ADV, Part II for official declarations.
  3. MTA portfolio strategies assume risk and no assurance is made that investors will avoid losses. No representation is made that clients will or are likely to achieve profits or incur losses comparable to those shown. Performance results are shown for illustration and discussion purposes only. The performance information has not been audited. However, the information presented is believed to be accurate and fairly presented. All performance figures in this presentation are net of management fees and commissions. Management fees are charged to actual client accounts on a monthly basis. Accounts include both taxable and non-taxable IRA accounts.
  4. Regarding the MTA Blend strategy: This strategy was migrated into the MTA Wealth Builder strategy and closed in December 2008.
  5. Regarding actual performance: Actual performance for all strategies includes all commissions as well as management fees (fees range from 1% to 2%). Actual performance statistics are based on the inception date of each strategy through the end of the last business day of the most recent month listed in the monthly performance section of this report. Starting with Q4, 2006, returns include only assets of Fidelity clients who were fully invested in their respective strategies. Returns before Q4, 2006 include all Fidelity client assets regardless of investment status. Results do not include the assets of clients at other brokerage firms.
  6. Regarding future performance: Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to corresponding past performance levels.
  7. S&P 500 refers to the Standard & Poor's 500 Large-Cap Corporations Index. The index is designed to measure performance of the broad based US market and consists of 500 American companies. This index is used for comparative purposes only. (Data is taken from Yahoo! Finance.)
  8. MarketTrend Advisors is not liable for the usefulness, timeliness, accuracy, or suitability of any information contained in its web site or of any of its services. The user understands that the information given can and will fail to predict the direction and magnitude of market price movements and the user can lose money when using this information.
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