April 6, 2022
“The World Has a Funny Way of Not Coming to an End”
— James Grant
The first quarter of 2022 began with a sizable sell off as the markets responded quite negatively to a big jump in inflation, rising interest rates, spiking oil prices, the War in Ukraine, and an inverted yield curve, all of which stoked fears of a possible recession. At its worst, the Nasdaq had tumbled over 20% and the S&P 500 was off close to 15%. Last year ended with investors enthusiastic but, by the end of February, enthusiasm had turned to extreme pessimism as the “list of terribles” weighed. But as the quote at the top of the letter states, “The World Has a Funny Way of Not Coming to an End”, and as cooler heads prevailed, the markets began a big recovery rally, cutting losses substantially by quarter end.
It’s easy at times to think of the “Market” as one entity where everything goes up or everything comes down. However, for many years now, the complexity of the “Market” has been much greater as certain sectors and companies have been doing well while others have not, largely based on perceptions for interest rates and other factors. As we stated in our last quarterly letter, this “rotational” market is actually quite healthy because it constantly refreshes the investment environment by taking speculation out of over-heated areas and looks for value in new sectors.
Though we remain longer-term constructive, we see volatility continuing as individual areas of the investment landscape continue to respond both negatively and positively to a less friendly Federal Reserve and Geo Political worries from Russia and China with the Ukraine War and the potential takeover of Taiwan. Mid-Term Presidential Election years also tend to be the most challenging of the 4 year Presidential cycle, and this mid-term year is no exception.
We continue to see a positive investment thesis in the more “value” oriented sectors and companies. As interest rates rise and inflation increases, investing in companies with good earnings visibility, solid balance sheets and the ability to raise prices are attractive. We continue to be cautious investing in areas that trade at expensive valuations based on earnings that are many years off in the future. Though inflation is on everyone’s mind, we are closely monitoring whether some of these inflationary pressures are starting to subside. It’s too early to say that certain commodities have peaked, however, we know that lumber, oil and wheat are trading well below their recent highs, while others such as steel and natural gas continue to move up.
As they say, “Bull market climb a wall of worry.” There are certainly plenty of things to worry about but that seems to be the case most of the time. The Market has had a lot of negative things to process but it remains remarkably resilient, especially in sectors that can perform in a higher interest rate environment.
Chief Investment Officer
Senior Managing Director
Portfolio Manager & Senior Research Analyst
L&S Advisors, Inc. (“L&S”) is a privately owned corporation headquartered in Los Angeles, CA. L&S was originally founded in 1979 and dissolved in 1996. The two founders, Sy Lippman and Ralph R. Scott, continued managing portfolios together and reformed the corporation in May 2006. The firm registered as an investment adviser with the U.S. Securities and Exchange commission in June 2006. L&S performance results prior to the reformation of the firm were achieved by the portfolio managers at a prior entity and have been linked to the performance history of L&S. The firm is defined as all accounts exclusively managed by L&S from 10/31/2005, as well as accounts managed in conjunction with other, external advisors via the Wells Fargo DMA investment program for the periods 05/02/2014, through the present time.
L&S claims compliance with the Global Investment Performance Standards (GIPS®). L&S has been independently verified by Ashland Partners & Company LLP for the periods October 31, 2005 through December 31, 2015, and ACA Performance Services for the periods from January 1, 2016 to December 31, 2020. Upon request to Sy Lippman at firstname.lastname@example.org. L&S can provide the L&S Advisors GIPS Report which provides a GIPS compliant presentation as well as a list of all composite descriptions. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
L&S is a registered investment adviser with the U.S. Securities and Exchange Commission (“SEC”) and is notice filed in various states. Any reference to or use of the terms “registered investment adviser” or “registered,” does not imply that L&S or any person associated with L&S has achieved a certain level of skill or training. L&S may only transact business or render personalized investment advice in those states and international jurisdictions where we are registered, notice filed, or where we qualify for an exemption or exclusion from registration requirements. Information in this newsletter is provided for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. Any communications with prospective clients residing in states or international jurisdictions where L&S and its advisory affiliates are not registered or licensed shall be limited so as not to trigger registration or licensing requirements. Opinions expressed herein are subject to change without notice. L&S has exercised reasonable professional care in preparing this information, which has been obtained from sources we believe to be reliable; however, L&S has not independently verified, or attested to, the accuracy or authenticity of the information. L&S shall not be liable to customers or anyone else for the inaccuracy or non-authenticity of the information or for any errors of omission in content regardless of the cause of such inaccuracy, non-authenticity, error, or omission, except to the extent arising from the sole gross negligence of L&S. In no event shall L&S be liable for consequential damages.
L&S’ current disclosure statement as set forth in ADV 2 of Form ADV as well as our Privacy Notice is available for your review upon request.