A Matter of Perspective

December 20, 2022

The shortest day of the year is near. For some, the winter solstice is that day each year when the Earth’s northern hemisphere leans farthest from the sun, offers a mere 9.5 hours of daylight, and when, quite often, we first encounter those frigid winter temperatures.

Life, however, is a matter of perspective and one might also describe the winter solstice as that one day each year when, through the course of its 67,000 miles per hour orbit, the celestial equator of the Earth is farthest above the Sun which is, itself, traveling 490,000 miles per hour in orbit around the center of the Milky Way galaxy.

Two descriptions of the winter solstice – two very different perspectives.

We can enjoy life on Earth because our planet occupies a habitable zone within a solar system that is conducive to life. Earth’s proximity to the sun is ideal—distant enough for our atmosphere to protect us from harmful radiation and for liquid surface water, but close enough to provide warmth to a biodiverse climate. Earth inhabits the so-called “Goldilocks zone” of our solar system.

Earth is a unique and special place amid enormous complexity.


Our investment team will publish an arsenal of annual review and capital market outlook materials now and in the coming weeks. Rather than do that here, in the Under the Hood, we want to instead pause and offer some perspective on why, despite recent volatility and serious uncertainty, we believe global financial markets will continue to be a unique and special place for investors to thrive in 2023 and beyond.

Just as there are attributes that make Earth conducive to life, institutions foster conditions that are “just right” for prosperous financial life.

  • Global Trade: Strong global trade creates habitable conditions for economic life. Despite recent growth trends to the contrary, global trade is still set to hit record highs of $32 trillion in 2022. It is true that trade growth faces staunch headwinds looking ahead to 2023 due to inflation, slowed economic growth, mounting global debt, and geopolitical tensions; however, we maintain a long-term focus and view strong foreign trade as a valuable mechanism, not only for prosperity but also for the future reduction of global conflict.
  • Regulatory Institutions: Regulatory institutions, such as the Federal Reserve Bank and Treasury Department, create an atmosphere that fosters the health and stability of the economy and financial markets. The Fed recently raised its benchmark interest rate to 4.25%-4.50%, the highest level in 15 years, in its continued fight against inflation. The expected “terminal” rate was set at 5.1% based on the Fed’s “dot plot.” The Fed’s actions will be a primary focus for investors as it continues its high-stakes balancing act promoting economic growth while reclaiming price stability.
  • Financial Markets: Financial markets formulate an economic climate reflective of a diverse global network of investors. This year has been a reset from the massive and critical economic response to the Covid pandemic which further reduced interest rates to remarkably low real-rate levels and naturally inflated asset values. The 10 Year U.S. Treasury yield is currently 3.5% down from a peak of nearly 4.3% and equity valuations have declined from a Price to Earnings ratio (PE) of 36 to a ratio currently around 19 with further multiple contractions a distinct possibility.
  • Liquidity: Currency and liquidity are essential to the life of financial systems, just as water is essential to the life of organisms on Earth.  Liquidity is important because it allows financial markets to function easily and efficiently, promotes confidence in financial systems, and encourages market participation. The Fed’s quantitative tightening cycle impacts liquidity and may present new risks to investors. This possibility supports a focus on investment-quality firms with healthy cash flows and balance sheets, to insulate from elevated credit and leverage risks.
  • Fiduciary Governance: As a trust company, American Trust is uniquely positioned to provide its clients with a comprehensive fiduciary governance framework. Just like the complex geological systems and processes that serve as the literal foundation for life on Earth, strict fiduciary standards form the bedrock of trust and confidence in American Trust’s relationships with its clients. We remain committed to ensuring the best people and processes are in place to deliver positive, repeatable, outcomes for our clients.

American Trust is a unique and special place amid enormous complexity.

The next year may present significant economic and financial challenges for investors, but the reset that occurred in 2022 through normalization in equity and fixed-income markets, along with our unwavering commitment to fiduciary best practices, serves as a source of confidence as we move forward with our clients. Regardless of what experiences lie ahead, the opportunity to bring our perspective to clients daily is a true honor and a privilege.

Happy holidays and best wishes for a happy new year!

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