Market Update - Tactical Portfolio Adjustment

Kyle Thompson, CFP®, CPA

As promised earlier this week, we wanted to share our upcoming portfolio adjustments which we will begin to implement tomorrow. These adjustments are part of our quarterly tactical trades and in response to the continued market volatility. We had our quarterly call with our portfolio construction team (BlackRock) earlier today and our investment team agrees with the proposed tactical adjustments.

My goal is to keep this letter rather brief (not my strong suit) while sharing their key research findings and tactical portfolio adjustments. Many of the themes I will share below align with what we shared earlier this week in our Market Commentary. As a reminder, our long-term strategic models remain intact. We are not market timers and firmly believe that staying the course and investing in a diversified manner through a strategic allocation is the proven path to long-term wealth. The portfolio adjustments we will be making to our models are simply tactical short-term adjustments to take advantage of perceived inefficiencies in the current economic environment. These tactical shifts are aimed to deliver positive returns over time against the benchmark returns.

Key Research Themes

Historic Outlier

The start of this year has been historic, and not in a positive way. The chart below illustrates what an outlier 2022 has been with both global equities and global fixed income experiencing negative returns. Given the degree of this outlier, I think there is a strong argument that the pendulum has swung too far to the downside.

Recession Outlook

BlackRock’s research largely aligned with what we shared on Monday. They acknowledge that the whispers of a recession have increased but they still think a full-blown recession is unlikely. As indicated in the chart below, the labor market remains very strong with unemployment back to the pre-pandemic rate of 3.6% along with a record number of job openings. On the right side of the chart, consumer finances are still elevated relative to the historical trendline. So, while economic growth may slow, the US consumer should help cushion the blow with consumer demand remaining strong.

Inflation Outlook

The biggest concern I shared earlier this week was around inflation. BlackRock shared some interesting data points where they believe that inflation could peak over the next couple of months. Commodities, a leading indicator of the direction of inflation started to roll over (chart on left) and as a result, the future expected CPI print should start to follow suit (chart on right). I won’t quote the number they provided for sake of being wrong, but our lead Chartered Financial Analyst (CFA) on the call shared a CPI number that would be less than half of our current CPI by year-end (I hope this is accurate). If this scenario plays out, I think much of the recession fears have already been priced into this correction and the landing could be much softer than what is currently being reflected at these market levels.

Proposed Tactical Shifts

The research themes noted above are driving the tactical shifts shared below. These shifts continue a trend of recent adjustments to reduce active risk and add resilience amidst the current market uncertainty. This quarter we have three equity and one fixed income adjustment.

Equity (stocks):

  • Trim equity overweight to 1%.
  • Our models are currently overweight 2% equites. We are going to reduce this by 1% and carry an overweight of 1% to equities across all models. Our preference still favors equities, but making this adjustment reduces our active risk and moves us closer to the benchmark targets if volatility persists.
  • Add infrastructure and high dividend-paying stocks, reduce technology and small cap stocks.
  • As the chart below illustrates, infrastructure and dividend-paying stocks tend to perform very well at this point in the cycle (moderately tight financial conditions and a steepening front-end yield curve). This is a sector play that tends to deliver better performance in a tightening market. These positions are defensive in nature and provide a lower volatility profile.

  • Reduce energy and commodity positions
  • These positions have greatly aided our portfolios YTD and are largely attributable to the positive returns relative to the benchmarks. With inflation potentially peaking next month and commodities starting to roll over, we feel now is a great time to take some profits and reduce our allocations to both our energy and commodity positions.

Fixed Income:

  • Increase exposure to TIPS and convertible bonds
  • Fixed income continues to be a challenge. BlackRock believes that investment grade and high yield markets will remain challenged given relatively narrow spreads over Treasuries. We have not had allocations to high-yield bonds this year but are shaving our investment grade exposure in favor of TIPS (inflation-protected bonds) and convertible bonds (debt holdings that act like stocks).


We will continue to actively harvest losses and rebalance client portfolios back to target. When the market starts to recover our clients will be wellpositioned to participate in the future recovery. We understand this has been a difficult period, but we are pleased with how our portfolios have responded and continue to believe the markets are on track to find their footing. Our belief is that we should start to turn the corner over the back half of the year.

We appreciate your commitment and trust in us. If there are any questions we can answer, please don’t hesitate to reach out. Many of you with tax deferred accounts will start to see trades placed tomorrow. We will be trading many of our taxable accounts early next week and should have our proposed trades fully implemented by mid-week.

I hope you have a great weekend!

Subscribe to Our Blog

Sign-up for our blog notifications below to stay up-to-date on the latest from Market Street Wealth Management Advisors. 

Sign Up

Please reach out if you want to talk through any of the adjustments laid out above.

Kyle Thompson, CFP®, CPA
Partner | Senior Financial Planner | Chief Investment Officer


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Market Street Wealth Management Advisors, LLC [“MSWMA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MSWMA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MSWMA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the MSWMA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at Please Note: MSWMA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MSWMA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a MSWMA client, please contact MSWMA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.