Managing Risk and Opportunity

     The risk of inflation appeared to increase during the past quarter.  The Fed raised interest rates in response.  The yield on the 10-year and 30-year U.S. Treasury bonds exceeded 5% for the first time in many years, reflecting inflation concerns. 

    Stocks generally lost a bit of ground in the quarter, as the Dow Jones Industrial Average declined 3.9%, while the S&P 500 Equal Weight Index fell 1.9%. The S&P 500 Weighted Stock Index rose 2.3% due to the concentration of technology stocks. Some individual stocks experienced significant volatility, with daily moves of 15% and more in response to news events.  Technology stocks, especially those related to artificial intelligence (AI), were impacted by concerns over regulation of data centers, security risks, and the introduction and impact of AI agents such as Meta’s “Muse.”  Concern over the issuance of enormous amounts of debt to build out AI infrastructure was also an issue.  All the above contributes to risks and opportunities.

     We are experiencing a stock market with daily trading influenced by hedge funds, traders and short-term investors.  The opportunity afforded by AI is exciting, but it is important for long-term investors to maintain a balance of having other high quality well managed companies rounding out an investment portfolio, even though they are not currently popular or attracting wide investor interest. 

     We will continue to balance the opportunities afforded by new technologies with the diversity of other well-run and well-managed businesses, although they may be growing at a slower pace, but priced accordingly.  We are managing risk with opportunity for the long term.

This material is for informational purposes only and is not individualized investment advice or a recommendation to buy or sell any security. Opinions are as of the date of this letter and may change. the Dow Jones Industrial Average tracks 30 large U.S companies; the S&P 5000 Index tacks large-cap U.S stocks; and the S&P 500 Equal Wright Index includes the same companies as the S&P 500 with each equally weighted. Indexes are unmanaged, cannot be invested in directly, and do not reflect fees or expenses. Past performance does not guarantee future results. Investing involves risk, including possible loss of principal.