Hello and welcome to our quarterly webinar. I'm Zoe Brunson, Chief Investment Strategist, and I'm joined today by Christian Chan, our Chief Investment Officer, and Kezia Samuel, our VP of Client Portfolio Management. We're gonna be discussing whether there's gonna be some storms or hurricanes ahead as we think about the markets and the economy. First, a couple of housekeeping items. I would really like to introduce Christian Chan to you all. It's probably the first time you're hearing from him. He's AssetMark's Chief Investment Officer who joined us in April. We're super excited to have Christian on board to lead our proprietary management of our strategies. Christian's taking on all of our Savos, our AssetMark Marketplace, Market Dimensions, the Aris strategies, all of those are falling under Christian's purview. With his 25 years of experience coming to us from Wells Fargo. As I said, very excited to have Christian on board and be part of the team here at AssetMark. Second one is Q&A, and you'll notice a Q&A box on your screen. If you have questions, please feel free to put them in, and we'll try to get to as many of them as possible at the end. Third one is, as we're recording this, a full recording, full replay will be available after the event. We're also gonna try something new this quarter and break it up into some self-serve on-demand recordings. Shorter clips focused on key areas that you could listen on demand as needed. Fourth one is materials. All of these slides are available for you to use with your clients. They can be found at, our quarterly updates page on eWealthManager. Finally, remind you of part two of this webinar series, which is on Tuesday at 1:00 P.M. Pacific, where Vickie Edwards and myself will talk about whether you need the raincoat, the umbrella, or the storm shelter for the summer storms or hurricanes that we're seeing. We'll be reviewing our platform performance review of our strategists and how they've adjusted to the volatility, as well as giving you some portfolio ideas. That's to come. With that gone, let us move on. Let's start by looking at the markets, as it's been quite an eventful second quarter and first half of the year. I think we can all agree that it's been a really rough first half of the year. I just heard some statistics this morning from Goldman Sachs that said there's only been 4% of the time since 1926 that the six-month return for equities and bonds were negative. An extremely rare occurrence. We saw that in the numbers. The S&P had its worst start since 1970, hitting bear market territory. We've seen the bonds have their worst time in history in the start of the year. Kezia, it's been horrible, right? We've been looking at the returns of the markets, and we've been trying to make sense of it all. We're hoping that you can help us make sense of what we've seen and provide us some key insights in terms of performance. Thank you, Zoe. Yes, in the world, in terms of trying to describe the first half of the year, it was a terrible, no good, absolutely challenging start to the year. Let's start with the second quarter, though. Here we're going to look at a variety of different investments, how they performed. We're going to take a ride at the top and look at the Global 60/40. Just to make sense of what are the different colors, anything to the left in green are investments that had better relative returns. Anything to the right in orange are investments with worse relative returns. You can see the Global 60/40 was down 12.6% for the quarter. As Zoe highlighted, it was a very challenging start to the year. You had stubbornly high inflation, rising interest rates. You also had recession fears percolating, all causing stocks, bonds, and commodities lower and negative for the quarter. A very challenging start to the year. As Zoe also highlighted, this was only the second time in 40 years that we've seen stocks and bonds have consecutive quarters of negative returns. The last time we saw this was 2008, and before that, it was 1981. We are creating new records, perhaps not the ones we want, but a challenging start and especially given a challenging second quarter. The one area that did see positive returns are managed futures. For those that are not as familiar with what are managed futures, it is an equity alternative style of investing that can buy and sell, go long and short, a variety of different asset classes, be they stocks, bonds, currencies, and commodities. The style is able to take advantage of trends in the marketplace, being short fixed income, long the dollar, and thus have positive returns when most traditional asset classes, as seen on the chart here, were negative. Diving into the equity market on the bottom left-hand side. Relative to the global equity market, the U.S. was the worst performer, down 16%. Again, as Zoe highlighted, the U.S. stock market using the S&P 500 officially entered bear market in the second quarter from dropping 20% from the peak last set in January 3rd, 2022. Again, numbers that we haven't seen in a long time. Surprisingly, when you look at the stack, international equity markets have fared while negative, slightly better. It both developed international as well as emerging markets had slightly better performance regardless of the challenges they face with the war in Ukraine and the geography for Europe as well as China's economic toll due to the zero-COVID policy that they have led. Why is this? The reason is that often the U.S. equity markets, which has much more of a growth tilt, is slightly different than the international market, which has much more of a value/cyclical bias to it. One of the reasons why we are seeing a slight better performance. We're also seeing that commodity-driven companies are in the emerging markets, thus driving some of the improvements, relatively speaking. Another thing that is not visible on here, which I think is of interest, is the strong dollar has had a significant impact on international returns. As an example, looking at developed internationals, so stocks in Europe, down 14%, for the quarter. When you look at this in local currency terms, it was down 7.6%. A big difference caused by that strong dollar hurting returns in dollar terms. Last but not least, closing out comments on the bonds side of the equation. Bonds once again struggled in the second quarter, but we did see a slight shift. The narrative went from inflation to recession. That caused, relative to the global bonds, the lower quality bonds like emerging markets as well as high yield, to get hurt further than the higher quality that were hurt due to the rise in interest rates or the duration risk. We did see the shift of recession causing credit-oriented or lower quality segments of the bond markets to get hurt further. Taking a snapshot of the full year. As I mentioned, you can see the title here. I couldn't think of a better way to encapsulate what had happened in the first half besides the terrible, no good, very challenging start to the year. Looking at the Global 60/40, which was down 17.5% for the first half of the year, with the very few asset classes to find shelter within, besides commodities and managed futures. In fact, if we were to end in a pretend scenario, if we were to end the year at June 30th, this would be one of the worst returns we have seen since the Great Depression era, since 1931 and 1937, when returns across the broad asset classes were down 20% or so. Again, we are setting records based on what we have seen in the markets. Perhaps not the records we want to see, but an important information to share with clients on how unusual these returns are. Similarly, diving into the returns for equity markets in the bottom left-hand side, relative to the global equity, we did see the U.S. was at par, down 20%, but international markets once again showing slight better performance in comparison to the U.S. equity markets. Again, the same reasons stand, but also in dollar terms. Again, going back to that developed international. Stocks in Europe, just to highlight one segment here, was down 19% or so in dollar terms, but when you look at this in local currency, developed international was down just 10.9%. A big difference coming from the dollar terms here. Last but not least, the same comments align with the bond markets. Credit-oriented segments sold off as that recession fear led a flight to safety. We did see that high yield in emerging markets get hurt more so and more importantly in the second quarter, relative to the higher quality, even though duration hurt on a broad basis. Again, a very, very challenging start to the year. There's just no way to sugarcoat this. I'll leave you with this. You know, when we're in this challenging time, it's hard to find silver linings. It is important as a U.S. equity investor, if you just look at the S&P 500, the three-year returns as of June is still 8.5% annualized basis. I know we've come through a very challenging time in the second half, but a long-term investor looking at their annualized returns is still sitting on gains, and it is an important reminder of why we stay invested. Hopefully, Zoe, shed a bit of light on what's happened in the second quarter and the year to date basis. That's great, Kezia. You kind of mentioned the flight to safety. I think about that here as well as we start looking at sectors and styles that we see that flight to quality. The go-getting growth that was so popular this time last year was kind of dropped like a hot potato, and we saw that preference shift for more defensive sectors. Looking at the history books again, I saw that the Nasdaq growth-heavy, tech-heavy index actually had its worst start to its history in this six months period. Another factoid to add about how we saw this shift to defensiveness. Kezia, why don't we dig into some of the sectors that we've seen, and was it the same across everywhere? Were there any bright spots that we saw in the quarter or the year to date period, and how that translated into styles and sizes? Yeah. Let's dive in. Let's look at the sector size and style within the S&P 500 segment. Starting with the sectors on the left-hand side. In the second quarter, there was no place to hide. All 11 sectors were down, including the ever-popular energy was down in the second quarter. While everything was down, there was a trend. We did see that the more defensive segments of the markets, like Consumer Staples and Utilities, think toilet paper and keeping the lights on, things that we can't live without, that did much better. While negative did much better on a relative basis. In contrast, the Technology, the growth-oriented segments like Communication Services, Consumer Discretionary, those did far worse. We are seeing a lean to the defensive more so than the growth areas within the sector. The same trend applies for the year with one exception that I talked about, energy, which was negative for the second quarter, but remains strongly positive, up nearly 32% for the year. Across the size in the top, right-hand side, not much of a difference here for the quarter and the year. Where I do think we wanna highlight is on the bottom right-hand side across the style. This is a clear delineation to the trends we have seen during COVID, which favored the sexy stocks and technology. Those were all the rage, in vogue. We have seen a complete shift in style. Value across large, mid, and small for the quarter and the year have outperformed their growth peers by a significant margin. You can see that specifically in large value versus growth, the difference is nearly 16%. Large value outperforming large growth by nearly 16% for the year. This is the widest gap that we have seen since 2000. We've seen, again, the growth segment dominating the markets, which is why we've called for a ballast in how we build portfolios, a reminder that trends don't stay in perpetuity. Those are the highlights. We are seeing more defensive segments hold up better. We are seeing value, which again has that lean into the defensive side, hold up better. I'm gonna use a line that I had reminded everyone from last quarter, which is value versus growth is a bit of a, you know, Jerry Maguire moment, the classic line of, "Show me the money." Investors are rewarding those companies that have the cash flows, today versus promising earnings tomorrow. That is clearly what we're seeing in why value is being favored. Closing out the comments with bonds within the U.S. market. Here we see, again, calling for statistics that we had never seen. Worst start to the U.S. bond market as represented by the aggregate index since its inception, down 10%. Again, we have not seen a worse start in its history, since again from the 1970s when the index was incepted. What are the main themes that we're seeing? If you had higher quality and lower duration, like you see on the far left-hand side, the short treasuries doing the best while still negative. While if you had long duration, like the long treasury is down 21%. We are seeing a big difference from that interest rate sensitivity. No surprises. We also, as I mentioned, talked about the lower quality segments, like high yield selling off precipitously in the second quarter, taking high yield as being the second worst in this bunch shown here. The last thing I'll mention that may be surprising to some investors, have leaned into tips amidst elevated inflation. Why are tips down? While tips does provide inflation protection, it is not insulated from interest rate rises either. As interest rate has risen, the duration effect on tips has impacted the price returns that you're seeing in here, causing tips to also be negative, but perhaps not as, well, worse as we are seeing on the aggregated basis. Hopefully given us a bit of a digestible sense of what happened in the second quarter of the year to date. Hopefully, we don't have to repeat these worst-ever statistics, Zoe, but that marks the comments for what we have seen across the broad asset classes. Thanks, Kezia. I really appreciate those insights. Now we have the first half in the books. It's in the record books. We've seen that we've hit the records in many places. Let's now turn our attention into kind of interpreting the economy and what's ahead of us. We see the continued stubbornness of high inflation, and I think this week's June print of 9.1% was a probably a little bit of a surprise and just amplifies the concerns about the Fed's focus that we now see. They've stated that they're very focused on inflation, and they don't really care about what happens to the economy. Christian, how do we interpret this? What are you seeing with regards to the inflation scenario that we're in today? Great. Well, thank you, Zoe. You really teed that up, amazingly well. I think it's important when we talk about, you know, the inflation and the recession, you know, kind of oscillation that we're seeing, that we just frame for a minute what the Fed is actually trying to achieve. You know, what is basically happening is the Fed has recognized that we have an inflation problem, right? That took them a while, but we're finally there. What they're trying to do is raise the level of interest rates in order to slow growth, which would therefore, hopefully, tamp down inflation. I think the sequence of events is really important here, right? First rates rise, then growth slows, and then inflation hopefully will slow along with that. As Kezia mentioned, you can almost feel the markets oscillate between being super concerned about growth on one day and being super concerned about inflation on the next day. Yesterday was one of those days where inflation was absolutely on the minds of the investor. As you mentioned, we had that 9.1% print. The charts on this slide are actually. We have the main numbers here, so I'll kind of verbally update some of these. It's 9% on a headline basis. Food was up 10.4%, so you know, kind of even a bit higher than last month. Energy up a bit more. 41% year-over-year. We saw a 7.5% increase in energy in the month of June alone. When you go to the core side, actually a little bit better. The core side, up 5.9% as opposed to up 0.6%. Just to kind of dig into some of what, you know, what drives the core. We have shelter that slowed down a little bit, but still looking pretty hot. We have food-related commodities and then labor. We'll touch on those in a few minutes. As I mentioned, the markets were absolutely focused on inflation yesterday. I think what was really interesting was the market reaction was initially pretty severe, but then as the day progressed, actually ground back a fair bit of what they lost. Equity sold off initially very sharply, kind of ground back in terms of ending the day at about 0.5 percentage point down. Yields stayed pretty much flat over the day. What's interesting to me is that I think what that tells us is that the markets have largely digested the idea of higher inflation, at least on a temporary basis. That's where we can kind of take a look. Here on the right-hand side of the page, we have PCE inflation. That's the Fed's preferred inflation measure there. On the dark blue, we have the last reading kind of as of June or kind of their expectations from June. On the light blue, we see their expectations for March. What you notice, a couple things, right? First, not super different, right? What they're thinking in terms of inflation from March to June, not all that different. They expect to see a pretty sharp decline in core PCE in 2023, and then lower in 2024, and then back to their long-running inflation target kind of beyond that. There is a little bit of a difference. If you look at the very beginning part, that 2022, clearly what they're recognizing here is that inflation is a lot more stubborn than they thought it was, right? That blue dot is quite a bit higher than the dark blue dot, I should say, is quite a bit higher than the light blue dot. I think what that recognizes is that they have to do more to lower inflation than what they had anticipated back in March. They kind of gave us that with this July meeting of hiking 75 basis points. There was an intentional surprise there, and because I think with Fed actions, they want a little bit of a shock factor there, and they certainly gave that to us. They've only, I think they've only hiked 75 basis points a handful in history. They haven't done it since 1994. That definitely shocked the market, definitely, communicated to, I think, really everybody around the world, that the Fed is really focused on inflation, at the expense, potentially, as you mentioned, Zoe, of growth. You can kind of see that on the right-hand chart there. Totally different looking chart, right, than the inflation chart. Very different set of expectations between what they thought would happen to growth in March, versus what they expect to happen to growth in June. Because they've had to do these outsized rate hikes, to tamp down stubbornly high inflation, the path of growth now is expected to be much slower, than it was, just back in June. I just wanna dig in a little bit, to some of these inflation numbers. Mention some of the things that I think drive inflation kind of underneath the numbers. Initial jobless claims. This is part of labor, obviously. You can look at average hourly earnings. You can look at job openings. Very clearly, the labor market is showing signs of cooling. We've got another jobless number this morning that's up 244,000. It's a little bit higher than it was last reading. We're definitely seeing signs of slowing within the labor market. Just to zoom out a bit, I don't wanna get too serious about this because the labor market, even though it's cooling, I mean, that'll help inflation, big picture-wise, still a really, really supportive environment for growth. In the middle, we have shipping container prices. This is one of my favorite measures, when we're trying to think about bottlenecks, right? We kind of read about all the port shutdowns, things of that nature. What you can see here is that the cost to move a shipping container of largely finished goods has really come off since the start of the year, down by about 25 percentage points, lower, to move goods back and forth from one continent to another. We're definitely seeing signs that, you know, the bottlenecks are slowly starting to loosen up. On the right-hand side, commodity prices. I think we all know the story there. Commodities, starting to roll over the energy complex. You could put industrial metals there. Agricultural, commodities as well, starting to see a nice decline there. The one exception that I think we all feel, right, prices at the pump is in gasoline prices. The average gasoline price really spiked higher in the month of June, but just now starting to come back. So we're seeing good declines in gasoline prices through, you know, so far in July. Actually, if gas prices stay the same during July for the rest of the month, that would actually take about 65 basis points off of inflation for the July numbers. Starting to see signs anyways that we are hopefully starting to get a bit of control over inflation. Christian, you mentioned about how the Fed is becoming pretty aggressive and has been aggressive in its rate rises this last change, and we expect continued rises in rates. We've seen that impact on the yields in bonds. I think that the Bloomberg U.S. Aggregate last I saw has increased 180 basis points in the first half of this year, and there's potentially further increases expected. What does that mean for the bond market and how do we interpret that? Great question. I think the first thing we have to do is acknowledge how excruciatingly painful this period of time has been in the bond market. As Kezia mentioned, the worst start to the year, the worst bond returns that we've seen really since bonds were incepted. I think that the big picture message here is that long term price declines within the bond market tend to even out. If you think about just how a bond works, and we show this here on the left-hand side on the dark blue line. This is the price return component for the aggregate bond index over the last 20 years. You can see it kind of moves around a little bit, but over the last 20 years, it's basically stayed flat. Right? If you think about how bonds work, eventually, you end up getting your principal back and then your price return kind of goes to zero over time. The vast majority or say all of the returns, that you tend to get from bonds over a long period of time, tend to be from coupons, right? The rising yield. That's where this drop in the bond market, as painful as it's been, has given us yield opportunities that we haven't seen in quite a few years. On the right-hand chart in orange, you see the yields in various sectors of the bond market, as of the second quarter of this year. In the blue you see the yields as of the second quarter from last year. The gap there is really quite stark to me, because I remember putting together a 3% bond yield portfolio for a client last year, and you'd have to load up on emerging markets debt or load up on high yield bonds in order to get a 3% yield in your portfolio. Today, you can actually get that in many parts of the markets. That enables you to construct a bond portfolio with a reasonable yield in a much more balanced way. I think the way I look at this is that, you know, yield per unit of credit risk or yield per unit of duration risk is much more compelling today than it was a year ago. Christian, we kind of talked about the fact that higher inflation tends to lead the Fed to raise rates, and that's really the effort to slow growth. That prompts the question on whether that growth turns negative. As we know, kind of negative growth tends to raise the question about recession. We've already seen the first quarter GDP growth come in at negative. We've seen the Atlanta Fed comment that second quarter is gonna be negative too. Christian questions come up, are we heading for recession? If we do, what does that mean? What's the impact of the different recession types that you're sharing here? Yeah, that's a great point, and a really interesting question. It's not an easy one to deal with, but I think what we're trying to do is, you know, draw some distinctions around different types of recessions, because I think people a lot of times think about recessions in this nebulous way. When you look over time and you analyze the sources and causes of different recessions, you actually see, you get some information that can be useful in investing money and how you would construct a portfolio. The way we look at it, there are three basic types of recessions. There are cyclical recessions. Think of a traditional demand-driven recession where you're starting to see demand get too hot and then that eventually you know, turns to inflation and slows itself down. We kind of show that on the right-hand side or the right side of, sorry, left-hand bars there. Then there are asset bubble related recessions. The thing I think the one we all remember I think quite well is the global financial crisis where you had an asset bubble like the subprime market or the housing market, and that cascaded into the banking system and became this long, drawn out financial crisis. Then we have geopolitical recessions. You can kind of think of the oil embargo back in the seventies. You could almost think about the COVID recession in the same way, right? Because that was policy driven. When you look at the impact of different types of recessions on equity markets, actually quite different. On the right-hand chart, we show those same three types of different recessions, and the impact on equity drawdowns in the dark blue bars and then in the subsequent equity recovery in the light blue bars. What you'll notice is that for cyclical and geopolitical types of recessions, you tend to get drawdowns in the 20%-25% range for the equity market. You also notice in looking at the light blue bars that the recovery after that is quite strong, especially when you compare them to that asset bubble related type of recession, right? The GFC, the Great Depression, those types of things where you have an impaired banking system. I think my key message here is that we don't think we're in one of these asset bubble financial crises. We have a lot of information that tells us that, like financial stress and financial conditions, all make it seem to us like the banking market is functioning quite well and the capital markets are flowing well. If we're in a cyclical or geopolitical type of recession, yes, maybe there's a bit more to go in terms of equity market volatility. Maybe it's somewhere between 20%-25% drawdown, right? That's kind of a decent range to think about. I think more importantly, the subsequent rebound can be much stronger than it was, certainly after the global financial crisis. Thanks, Christian. Great insights and great comments around the economy, inflation and rates. Now we've had a lot of volatility in a short period of time, having lived through many, many years of low volatility. We know that volatility is part of a normal functioning market. You know, without the downs, we can't get the ups. On top of the inflation and a bear market and the impending recession that we've just discussed, we also have midterms. We know when midterms happen, we tend to get higher levels of volatility. That adds its twists and turns to the market. Christian, as we think about this, how should we be thinking about positioning portfolios given all of the volatility that could be coming down the pipe? It's a great question. I think a lot of that depends on how you think about both markets and market cycles and the economic cycle. Yeah, I said just a few minutes ago that in our perspective, we think about recessions in three different types, right? We have that cyclical, we have that asset price or financial crisis, and then we have geopolitical. We really believe that we're in some combination of cyclical and geopolitical given kind of what's transpired and what seems to be driving the rate cycle, driving the growth cycle. If that's the case, we think a great strategy is potentially to lean into it, particularly for investors that have longer time horizons. What we mean by that is if markets will mean revert from this cycle, like they have in previous cyclical or geopolitical types of recessions, this can actually be a decent buying opportunity, again, for those that have a higher risk tolerance and perhaps a longer time horizon. On the left-hand chart, we show the average return after a bear market over various time horizons. You can see that over one year, if you kind of bought after the markets have declined 20% and held it for the next year, you're up almost 20%. If you held that over three years, you'd be up almost 40%. If you hold that over five years, up over 60%, right? There are buying opportunities out there, but you have to have the right type of investor. I think this is a great. You know, we can definitely use these types of nuggets that we can talk to investors about, as a way to talk to them, help them talk through, how to manage a bear market and how to deal with portfolio volatility. The other thing that you can do is even simpler than that, and maybe this is more applicable for a broad set of clients, but simply talk about rebalancing. I think in this type of market environment, the most important thing we can do for our clients is simply talk to them, right? Talk them through the volatility, talk them through what they're feeling, and ultimately try to keep them invested, because if you even do something as simple as rebalance your portfolio, you can actually add quite a bit of value. We did a study here that shows the difference between long-term portfolio returns over a 30-year period if you have a, you know, disciplined yearly rebalancing schedule compared to not rebalancing your portfolio at all. You know, it's a long period of time, but you can generate almost 50% more, 50 percentage points more, I should say, of additional return over a long period of time. I think the key thing that I would tell advisors and kind of their clients alike is that, you know, the markets tend to mean revert, especially if we're not in one of these situations where the banking system becomes impaired and we enter a depression. We don't think we're in one of those environments. There are some simple things you can do to make your portfolio stronger. You can simply rebalance or if you have a slightly longer time horizon or maybe you have a, you know, you're a bit more optimistic about things, then you could possibly lean into it and add a little bit of equity risk. You know, it might take some time to kind of work the markets back and generate some excess returns that way. Time is on your side, right? The longer you can keep invested and stay invested, the longer the better the opportunity for kind of long-term wealth creation. Fantastic reminders about the disciplines of being invested in the markets and to reach clients' long-term goals. Before I hit the key points on the summaries, just a reminder that if you do have questions, feel free to enter them in the Q&A box. We've had a couple already. Let me hit on some of the key points that we just shared today around the markets, the environment, and thinking about portfolios for the long term. The first off, as we mentioned, I think about the history that we've been through and I've just been doing social studies or finishing off social studies with my daughter with her schoolwork. She has asked me kind of, "The environment we're going through today, gonna be in the history books going forward, Mom?" I'm like, "Definitely." That's what we're seeing today. The environment that we're in today is making the history books. As I mentioned at the open, 4% of the time, stocks and bonds are negative. Now, on average, they've been down 10.3% and 1.6% for stocks and intermediate Treasuries, respectively. Today, they're very different. Way, way different today. Much deeper return drawdown. You can see the impact of how rare and how different this environment has been. Let's talk about the Fed. As Christian highlighted, everyone's focused on the Fed and their policies. We've seen them increase in recession concerns, but we need to make sure that people are aware that recessions are part of a normal economic cycle, the same way that markets have cycles. Recessions are just, you know, it's part of normal environment and part of normal investing. Really having awareness to make sure that people are aware there's different recessions, and Christian talked about it. Just as an awareness, all of these slides are available for you to use with your clients. You can take those and have the discussion about those different types of recessions with them and the impact of them. Knowing that and being able to have that discussion and awareness will be helpful, but not every market cycle is exactly the same. It's a good guide, but never the same. The other thing is remember our disciplines. Remember that we need to be disciplined during these times. We need to make sure we're not making some of those bad emotional decisions. Really be aware of what's happening. Lean into some of these opportunities. If we were willing to buy the market this time last year, why are we not willing to buy it today when we're down significantly and things are basically on sale? I know when I like to go shopping, I like to go buy things on sale, not at full price. Be leaning into that, thinking about diversifying, not putting all the eggs in one basket. As Kezia mentioned, having balance between value and growth. There are still opportunities in the growth market despite all the headlines that the technology has been hurting over this time. Just have awareness, be diversified, be balanced. As Christian highlighted, some of this volatility allows us to take advantage and rebalance our portfolios. Sometimes we're scared to sell the stuff that's been performing well and buying stuff that's not been performing well. That's the part and beauty of having discipline to our investment processes. Just remember, it's a tough start. It's historical. We've got a lot of runway ahead of us. Recessions and market dips are part of the normal cycle, and it's an opportunity for us to lean into it, diversify, and rebalance our portfolios. With that, let me turn over to some of the questions that we've had. Christian, the first one that really came up was around the types of recessions. We've got a lot of questions about recessions, and a lot of people have asked, "What type of recession would you say we are in?" I know you mentioned we're probably not the asset bubble, but where do we fit between the other two? Oh, great question. Yes. I think that, you know, from the way we look at it, and we actually have a piece that's coming out on this, I think it's coming out on Friday. I kind of think that we are in somewhere between a cyclical and a geopolitical type of recessionary or, you know, type of recessionary environment. I think it's still not quite a foregone conclusion that we're in a recession. I know we've seen some negative numbers and, you know, a lot of indicators, but yeah, I think to me in a way is that that story has not been written just yet. Because when I think about recessions, you have to think about jobs, you have to think about industrial production and kind of all of these different measures. It's not just GDP data, like that two consecutive quarters of negative GDP growth. I think it's more complicated than that. When I look at the hard data around how the banking system is functioning, like financial stress indexes, there are a couple of them that the Fed keeps track of. Those all look really good. I look at how the front end of the yield curve is behaving, particularly as the Fed is pulling liquidity out of the system through quantitative tightening, right? That's where you expect to see some stresses. So far, everything is operating really quite effectively. We're not seeing any of the plumbing of the economy through the financial system showing much signs of stress at all. What that leads me to believe is that we're probably in one of those other two recessions or maybe a combination of a cyclical recession and a geopolitical recession, just given the influence of, say, the war in Ukraine on commodity prices. We don't see much signs of an asset bubble type of recession, because right now the financial system, you know, is still functioning really well. That's what we would look for, you know, to get us indication of whether we were in a financial crisis type of situation. We keep really on top of those types of indicators. We look at them every single day. We haven't seen anything so far that really concerns us in that regard. Great. Kezia, I'm gonna switch over to you. We had a question in, and I'm not sure if we have the data right now or whether we will follow up with Robert Duffy. It was really about the perspective on how asset classes perform after bear markets, and how bonds might perform during different recessions. I know I've seen returns of bonds during rising rates, but any data or insights that you can share with regards to bear markets and the subsequent performance of asset classes. Yeah. Specifically with bonds, post-bear markets. First of all, the definition of a bear market for bonds is a bit looser than the 20% down for stocks. It's not as well-defined in the bond space, but clearly, these are returns that we haven't seen, as I mentioned, since the inception. Generally speaking, once we have seen returns in this category, returns thereafter historically have been strong. That is in similar vein to what we have seen in the stock market. Similar to looking at bond and stock returns after a bear market on a one-year, three-year, five-year basis. Returns are similar. Don't have the exact numbers, but the theme is similar. The second thing is, though, we have seen periods where stock and bond correlation, which is this simultaneous fall in stocks and bonds that we have seen in the first half of 2022, has happened in the past. If you look at the late 1980s where we had stock-bond correlations in the positive, too, where we are, that period has happened, but that's not necessarily one that tells us if we were to enter a slowdown or recession, an asset. A cyclical recession as highlighted by Christian, that's when we do see that investors do lean into bonds for that flight to safety. That has happened irrespective of the correlation regime that we have seen. The flight to safety has worked. We clearly have seen in 2022 it not work in the near term, given where rates were and how quickly they moved from 0% to the 3% numbers that we had shared earlier. Generally speaking, in summary, yes, they tend to do better post the bear markets. In second term, the correlations for stocks and bonds have been positive, but during recessionary periods, the lean into bonds have helped provide that balance as we have even seen during short periods in 2022 during that flight to quality type of an environment. Anything to add there, Christian? Yeah, I think you nailed that one, Kezia, like you always do. I think that's another function of higher bond yields, right? In the sense that, I talked about that yield opportunity that's available today that hasn't been available for a while. Part and parcel of that is that you also get a better correlation benefit, so a lower correlation between stocks and bonds, when yields are higher because you have that yield cushion. I think that's one of the, you know, one of the couple benefits that, you know, that we can point to, in terms of, in terms of the fixed income market, is that bonds will now, we think, act as a better offset to growth risk, and to the growth risk in equities, than what they had been kind of prior. That's another good point to make there. Christian, I wanna keep with you for one second with regards to the rebalancing comments. Have you found over the years, is there one better way to rebalance? Is it quarterly? Is it annual? How should our advisors think about the rebalancing that they might do with their client portfolios? That is a really great question, and it is quite nuanced. I think a lot of it depends on if you're talking about intra-asset class or inter-asset class types of rebalancing. It would depend on the momentum environment. I think, you know, long term, what we've seen is that annual rebalancing tends to work. I wouldn't say the best, but I'd say it triangulates trading activity and then return benefits and risk benefits. All of those are trade-offs that you have to make when you're trying to think about rebalancing a portfolio. Because if you balance too frequently, say quarterly or even monthly, you're not taking advantage of the natural momentum in asset prices, right? Because, as we all know, when you know, trend is a really powerful force in the financial markets, and you have to take advantage of that, at least a little bit when you're rebalancing portfolios. If you go too far between rebalancing, then you have the, you know, the potential of getting too overweight in equities, for example, heading into a bear market. I think we have to, you know, try to triangulate a few different things. Tax, you know, tax implications, trading activity, that's just generally something you wanna tamp down, momentum in the marketplace, but then also prices. What we have found is that, you know, you get double benefit from rebalancing, right? It's that making sure you're not overweight risk assets heading into a bear market. When prices are lower and you have an opportunity to potentially buy in at on something on sale, as you put it, Zoe, that can be really accretive to long-term returns. In this situation, we've seen you know pretty good drawdown in equity prices. We would advocate that this is a pretty good time to rebalance portfolios you know kind of irrespective of of how how bonds have performed. I think always a good idea to rebalance, but you have to balance you know quite a few factors. Great. Well, I wanna say thank you to both you and Kezia for all of those fantastic insights. I'd like to share a plug and a reminder about our webinar on Tuesday that Vickie Edwards and myself will be hosting with you to really talk about portfolio and performance, positioning. Talking about the platform and some of the key highlights we've seen from it, updates around strategists, as well as taking the ideas of today with regards to opportunities and how to think about building portfolios and using strategies on our platform to respond and react to today's environment of higher inflation, higher rates and slower growth. That's Tuesday at 1:00 P.M. Pacific. We hope to see you there. With that, I wanna say thank you to all of you for spending some time with us. Please take some time to provide responses to our survey. It's how we get to serve you better. It's how we get to make sure we get you the information that you need to help with your discussions with your clients. From everyone here at AssetMark, thank you for spending the time. We look forward to seeing you very soon as we are picking up our travel again and getting out on the road. Wish you a happy end to what's become a very fast summer for some of us, as we get ready to set up for the fall. With that, look forward to seeing you. Just as a heads up, I think this said January, and it's meant to say July. That's a typo. It is Tuesday, July 19th, so next Tuesday at 1:00 P.M. Pacific. Thanks, Heather, for highlighting that for us and reminding us that our webinar on Tuesday is this July, not January. Appreciate that. Have a great rest of the day for everybody, and we will speak to you very soon. Thank you and goodbye.