Since the onset of COVID-19, it has been hard to know what normal really is in the world, let alone in the financial markets. By locking down the U.S. economy in 2020, the government intentionally created a recession—which they then helped alleviate by lowering interest rates to zero and issuing $6 trillion in free money for individuals and businesses. Stocks responded by surging to their second best three year results ever from 2019–2021. In 2022, the Federal Reserve raised interest rates at their fastest rate ever to counter inflation, which was at least partially created by the free money giveaway. Stocks then entered a bear market on fears that we will be entering yet another recession.

So, where do we go from here? While the past four years have been very positive for stocks, 2022 results have left many feeling they are stuck in dire straits. We lose sight that 2019–2021 was as abnormal as 2022, though for opposite reasons. While the risk of a recession, threats of a government shutdown, and the continuing war between Russia and Ukraine are not to be dismissed, we also see financial markets that are moving closer to normality—where capital has a cost and speculation is not an investment strategy. We believe that our discipline of valuing quality companies based on interest rates and earnings will continue to prove successful over market cycles—and that companies with strong balance sheets and progressive managements will have distinct advantages in the new investment landscape ahead.


The Long Run – January 2023