The Board Remains Vigilant
The volatility of the stock market continues to underscore the divergence of opinion about the state of our economy. The recent 1000-plus-point drop in the DJIA was disconcerting to most observers. Equally perplexing was the rapid rebound experienced through mid-morning Monday May 23.
The heart of the investment question is whether or not we will have a “soft landing,” meaning that we don’t go into a recession because of rising interest rates. Corporate profits are continuing to advance, while stock market valuation metrics are substantially lower than they have been, so fundamentals look okay right now. What we don’t know is the future impact that might occur because of the recent interest rate increases and those that are forecast.
In the negative scenario, we can see a further possible decline in stock valuations, an outcome that is certainly conceivable. However, we also know that bear market declines usually have some unforeseen event that results in a rapid, sometimes aggressive reversal of the downward trajectory. Market timers may be very accurate in selling, but are often very delayed in the buyback as the market turns around.
Your Board of Managers, using the best information that we have at the present time, concluded at a special meeting today, May 23, that our strategy of shifting some money into a value index fund should continue and that we should continue to reduce our equity exposure as we honor shareholder redemptions. We believe our current equity exposure as of May 20 of 67.72% is appropriate. Be assured, we are also watching closely.
Chris Maxwell, Vice Chair
Board of Managers
Easton Episcopal Funds