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April 2022

Dear Clients and Friends,

What an amazing and volatile quarter for the markets! Stocks managed to fall AND rise over 10% during the quarter; while bonds, depending on which bonds you look at, had their worst start of the year in 4 decades (when Reagan was president!). First quarter bond returns are boxed in blue in the table below.

Company valuations had been running near historic highs last year as the Fed used all the tools at their disposal to reinvigorate the economy after COVID containment policies ravaged consumption the year prior. The obvious problem, which the Fed has not formally acknowledged, is that they have always been aggressive at cutting interest rates, but much slower to bring interest rates back to “normal”. In 2021, with the economy opening back up, consumers and commercial customers opened up the spigots in an environment of artificially low interest rates and massive pent-up demand. Housing prices in many areas of the country witnessed price growth not seen since post-WWII while inflation jumped to shockingly high levels. At first, the Fed was timid saying that inflation was “transitory,” maybe a 2-3 quarter phenomenon that would adjust as supply chain shortages recovered. But here we are in the spring of 2022 and inflation is still running around ~8% depending on what government measure you look at -- for some consumers the reality is likely much higher. As a result, the Fed is in a position where they must hike rates aggressively to quell inflation. It’s now clear that stock and bond investors alike have become very wary of this path. Will the economy be able to withstand these aggressive rate hikes? It’s not at all clear. One of the bond market’s preferred barometers for the future health of the economy, the yield curve, is signaling a forthcoming recession in 6-18 months. While home sales have held up so far (we are very early in the Fed’s proposed cycle of rate hikes), companies that benefit from home sales such as Lowes (LOW) and Home Depot (HD) have seen their share prices get slammed in the most recent quarter (see below) – this certainly is not what you’d expect in a booming economy.

Notice that we haven’t even mentioned the war in Ukraine yet. The war in Ukraine contributed to market volatility, pushing oil prices up dramatically, while causing additional concerns about the potential of food shortages and further supply chain disruptions. Russia is a significant supplier of oil, gas, and other petrochemicals as well as mining and metals. Sanctions against Russia are already having far-reaching implications for manufacturers, and for the world’s largest banks as they hold Russian government and corporate bonds, which are now in a precarious position. The full implications of Russia’s financial situation likely won’t be apparent for several months if not years. But for investors, the potential for secondary and tertiary effects will continue to make them uneasy.

We’d be remiss if we failed to look explicitly at interest rates, which have shot dramatically higher in anticipation of Federal Reserve rate hikes. From the chart below you can see the yield on the 10yr treasury note has risen over 80% in little more than 3 months while the NASDAQ 100 stock market index has fallen about 14% in the same time frame.

Rate increases will reach every corner of the economy, most obviously cooling down the housing market as well as car sales, and eventually even credit card purchases. As one prominent pundit recently put it (paraphrasing here) “the Fed wants you to suddenly feel poor. This will lead you to spend less, causing prices to fall and easing inflation.” Ouch. With earnings season just getting underway, S&P500 1Q22 earnings are set to rise, but that rise is expected to be all due to the rebound in oil prices – leaving S&P500 earnings ex-energy to be slightly negative, something no one anticipated only a few months ago. There’s no question that it’s challenging to feel bullish in this environment making us glad to have strategies to navigate the choppiness. In the next few weeks, earnings calls will provide outlooks on the coming quarters that could set the stage for significant market moves. No matter the direction, our strategies remain well equipped for the volatility.

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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Advisors, Ltd.
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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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