Perspectives
Balanced Tension: How Sir Isaac Newton’s Third Law Of Motion Seems To Be In Play Today
Investment Perspectives: Q4, 2022

Todd Sixt
Chief Executive Officer, Founder
Todd Sixt is the CEO of Strait & Sound. He is a successful and seasoned leader of financial service teams. His focus is to ensure Strait & Sound’s clients are provided with a first-class experience and that the work delivered by our people is unsurpassed in the financial services industry. At his core, he believes in excellence.
Sir Isaac Newton’s third law of motion holds that for every action there is an equal and opposite reaction. I think that’s a pretty accurate description of what I see today. Here’s why I say this. Republicans were supposed to sweep midterm elections, but the red wave didn’t happen. The war in Ukraine was projected to be a quick victory for Russia. Instead, it’s become a protracted exercise in outside powers seeking to check Russia’s military aggression.
There is real hope that the COVID 19 pandemic will finally end. Yet, infections, hospitalizations and unfortunately death are still with us and will likely remain for some time. A deep recession has been prognosticated for some time now, but it hasn’t happened. Inflation has eroded buying power even as the Federal Reserve raises interest rates to curb it. Yup. It pretty much looks to me like powerful forces are chiding against each other to maintain balance. So why does this make me feel so good about the future?
Health, Stability, Freedom And Prosperity
As I think about all that has happened over the last several years, I come away with one overriding impression. Human beings on this planet really want four things right now: health, stability, freedom and prosperity. Sometimes, to realize all four of those, forces will be in balanced tension against each other. This is a good thing because it prevents out-of-control downward spirals. That gives me hope for the future: a future where families can work hard, live beneath their means, take a long-term view of things and invest to realize their dreams. Let me give you some examples of how I see balanced tension working today to protect our interests:
- COVID 19 has been the single biggest assault on human health that we’ve seen in 100 years. Yet, through vaccinations, social distancing and vigilance, we’ve mitigated it and will defeat it in the future.
- The voices and perspectives that led to the January 6 insurrection were roundly rejected in this last election. This sent a message to elected officials: we want stability, not radical polarization.
- As COVID 19 shutdowns have lifted in the US and Europe, people are once again flying, driving, taking cruises and enjoying the company of friends and family. Have you heard of revenge travel? Many people in China are openly protesting no-end-in-sight lock-down measures that restrict their freedoms.
- Numerous factors contributed to rising inflation. Personal spending power eroded as family staples became more expensive. To counter inflation, the Federal Reserve has increased interest rates at a steady clip. Will this work? Time will tell. But so far, the results are encouraging.
My point here is simply this. Every time a force or event arises that could undermine our long-term interests, another force seems to arise to mitigate the damaging effects. I see this as inherently good news for the long-term investor who has a solid plan, sticks to the plan and makes smart pivots at the right time. I believe foolish investors will run for the hills out of fear, converting most of their portfolio to cash and seeking to get back in the markets later. I don’t believe that makes sense and here’s why.
There is no secret sauce to building wealth through investing. The underlying principle is simple: buy low—sell high. I do not believe that this is the right time to sell, for most investors, unless their plan from decades ago dictates that this is the right time. So my advice is equally simple. Have a plan and stick to it over time because that’s how meaningful long-term prosperity is achieved for most families.
Of course, I cannot predict the future and if things were to take a sudden turn, we would be in consultation with you to make necessary pivots. But based on everything I can see today, I very much doubt that would be necessary.
Key Take Away
“Stay invested. The balanced portfolio is likely to rebound nicely in the coming quarters. “
Drivers Impacting The Markets Over The Next Few Quarters
- Economy health. Overall, my sense is that our economy has caught a cold. It isn’t a flu bug and it’s certainly not COVID. But the economy seems to me to be in a sluggish period, needing some chicken noodle soup and maybe even a nap. I know that’s not a very technical definition, but it seems to me to be an appropriate metaphor.
- Analyst predictions. I believe many analyst’s projections are too high. I’m not convinced that they’re realistic compared to the actual economic conditions on the ground today. Some analysts are calling for 5.7% earnings growth and 3.4% revenue growth in Q4, 2022. I doubt this will happen for most corporations.
- Unemployment. I expect unemployment to go up over the next couple of quarters. This is one of the downsides of the Fed’s interest rate hikes, which often have a muted impact on consumer spending. This, in turn, can cause corporations to lay off workers as demands for their goods and services decrease. In the technology sector, we are seeing sizable layoffs. This trend will likely continue for some time. However, unemployment still remains at historic lows in the US.
- Housing. Most families will be less likely to buy if they are uncertain about their incomes. This could mean that home sales might curtail in the coming months. Interest rates will likely continue to rise, impacting favorable buying conditions. The net effect could be home prices dropping by as much as 15-20% in the coming quarters. I don’t anticipate decreases in rent in this period.
- Federal Reserve policy. The Fed’s interest rate adjustment policy could help balance inflation, housing and even employment. Interest rates will likely peak within the next quarter or two. Thereafter, they could go down. The Fed’s expressed goal was to cool off an overheating economy. That goal could very well be achieved soon.
- Zero COVID. China’s lockdown policy could continue to effect supply chains and cost-effective international parts and supplies. This could have a negative economic impact globally. So much of China’s debt is tied to real estate projects. But their real estate growth is slowing. They’ve seen slower growth this year than in the past 30 years.
- Recession. As I’ve stated elsewhere, technically we are in a recession—if we define it as two consecutive quarters of GDP decline. Europe and the UK are likely in the same boat. But I do not think this means that a 1930’s style depression is imminent.
- Inflation. As of the time of writing this article, inflation is at 8%. I think it could go down by 1-2% in 2023. Gas prices have steadily declined over the last couple of months. Groceries and home supplies seem to have stabilized or gone down as well. In other words, the worst of what we’ve seen from inflation could be behind us. Real disposable income could rebound in 2023.
Everything I’ve said above is speculative analysis on my part. This analysis is informed by my years of experience in this field as well as by the thought leaders and indexes I follow on a consistent basis. All of this is subject to change because I cannot predict the future.
How Might This Impact Long-Term Investors?
Overall, I expect 2023 to be a down year compared to the last several years. I don’t anticipate an unbroken upward trajectory of growth as volatility in the markets will probably be with us for much of the year. However, there are forces in play that could turn things in a positive direction. For instance, if China defeats COVID and their workforce rebounds, global supply chains might also rebound, driving down inflation and enhancing international trade.
The 60-40 balanced portfolio (60% stocks, 40% bonds) has been a reliable model for most investors for many years now. In 2022, the 60-40 portfolio did not perform as well as in past years. At the time of writing this article, the bond market is down 14.5%. However, the balanced portfolio, as a risk-adjusted model for real returns (after inflation), still seems to me the best option for most long-term investors. Why do I say this?
The last two quarters of 2023 and going into 2024 could be strong. There are enough indicators in play to suggest that negative headwinds could be countered by positive headwinds. This could mean an attractive rebound is not that far away. A balanced portfolio will participate in that rebound while also mitigating the risks of an unbalanced portfolio or active investing. Staying balanced is prudent, by my estimation.
What Do I Recommend Right Now?
Given everything I’ve said above, what do I recommend?
- Stick to your plan. The long-term investor could lose if they convert to cash during this period of “economic cold.” The financial plans we design for clients anticipate periods of economic decline and expansion.
- I don’t recommend large changes to investment portfolios. Now is probably the time to hold steady and watch carefully—which we do on your behalf all the time.
- If your family nest egg is not large enough or has been depleted, it’s a good idea to build it back up. A good rule of thumb is to have six months of living expenses within easy reach. This should also enhance your peace of mind.
- Now is probably not the best time to buy real estate.
Wrap Up
None of us can predict the future. However, at Strait & Sound we believe long-term investors who follow a disciplined plan are best positioned to achieve their long-term wealth goals. The financial plans we design for clients are constructed to most likely achieve these goals. We are vigilant and proactive in keeping our clients’ portfolios balanced and in-line with their stated objectives and risk tolerances. If you have any questions about the analysis put forward here, please reach out to your Strait & Sound financial advisor.
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