Global Markets enjoyed a steady uptrend this quarter finishing on a strong note. The S&P 500 Index rose 8.7% with the Dow Jones Industrial Average rose 4%. The NASDAQ composite posted surprisingly strong performance with a rise of 13%. The MSCI All Country World Index rose 7%. The Bloomberg U.S. Aggregate Bond Index fell slightly less than 1%. U.S. Treasury rates rose sharply although the yield curve continued to be inverted during the quarter. The ten-year treasury at 3.84% was 37 basis points higher at quarter-end versus the prior quarter while the two- year treasury at 4.90% rose a startingly 87 basis points. Our view has not changed, this level of inversion continues to bode poorly for the economy in late 2023/early 2024. The three-month U.S.T bill at a yield of 5.30% is now 146 basis points higher than the 10-year U.S. Treasury note (widening another 18 basis points from last quarter), historically a sign of a forthcoming recession. There is more market ‘talk’ of: IS this time different?

The Federal Reserve paused in their Federal Funds rate rise but they have made it clear after the June meeting that it was only a pause, not the end of the rate rise(s) for this economic cycle. They also continued to slowly reduce their bloated balance sheet on a monthly basis. What is on the minds of market participants is: Will the FOMC raise the Federal Funds rate at one or more of the 2023’s meetings? Will a weaker dollar and signs of both inflation (PCE or CPI?) and the economy cooling be enough to end this cycle of rising rates? And if so for how long will the rate rise cycle go on if inflation does not slow quickly enough for the FOMC? As noted last quarter, we anticipate one and possible two more 25 basis points in 2023. And as we have said ad nauseum in prior quarters: ‘Historically, in the face of rampant inflation, the FOMC continues to tighten until they break something, even if this results in a recession’. The question had been; was the collapse of three banks (largest since 2008) qualify as ‘breaking something’? Did the collapse of Credit Suisse also qualify? Apparently, none of the above, so the rate rise cycle continues. Noting the substantive rise in interest rates this quarter, the ‘bond vigilantes’ have been ‘contained’ for the moment.

As we have stated before; market volatility will continue in 2023. We continue to be concerned about a global equity and fixed income market correction of even

more substance than occurred in 2022. Valuations, particularly those that are both interest-rate sensitive and Technology related remain elevated. Comparative valuations to the 1999/2000 overvalued equity markets cannot be and should not be ignored. Intermittent ‘bear market’ rallies (of which we had several in 2022 and again this quarter) of considerable magnitude and substantive declines thereafter might well be the norm for the balance for 2023. While fixed income rates have risen this quarter, the interest rate spread between investment and non-investment grade securities still does not reflect realities in today’s inflation fueledeconomy. Whilethedollarhasbeenrelativelyflatagainstworldcurrencies this quarter it is still considerably higher than it was in just two years ago. And it may yet have more to fall.

And we repeat: The impact of the war in Ukraine still cannot be assimilated into the global economy with any degree of confidence. The human and economic tragedies are reminiscent of World War II. Moreover, profits at US multinational companies will continue to be negatively affected by a strong dollar, the war and the resultant slowing of economies in Europe. These horrors and the aftermath of the pandemic means caution in the global markets continues to be warranted.

Our continuing search for and investment in undervalued assets requires patience and a healthy dose of optimism for humanity.

Seacrest Investment Management (“SIM”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where SIM and its representatives are properly licensed or exempt from licensure.”

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