Laurel Highlands Workforce & Opportunity Center-Ribbon Cutting Ceremony

At Covington our primary focus has been meeting our clients’ financial goals and secondarily to make a difference in our community. Meeting our clients’ financial goals has enabled us to participate in a number of community efforts for the betterment of the human experience. On November 11th, 2022, I had the privilege of hosting a ribbon cutting ceremony at the newly established Laurel Highlands Workforce & Opportunity Center celebrating the Center’s successful operations and its first class of cohorts studying to become Medical Assistants. The Center is located at 310 Donahoe Road, Greensburg, PA 15601. Feel free to visit the website at https://lhwoc.org for more information.

Patrick Wallace (middle) cuts the ribbon at the Laurel Highlands Workforce & Opportunity Center ribbon cutting ceremony. ..

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Q3-2022 Quarterly Newsletter

More Pain To Endure

There is no doubt that this has been one of the most difficult years in recent memory for many investors. Nearly every equity index has fallen below the definition of a traditional bear market, a decline of 20% or more. Equally difficult has been the performance of the bond market which is supposed to insulate portfolios from market volatility. Even commodities, which started the year strong with heightened geopolitical activity, have begun to roll over. Crude oil has fallen -25% during the third quarter of 2022 and -35.7% since its March peak. Under restrictive Fed policy to mitigate heightened inflation, we will have to endure the pain until the Fed completes their mandate of price stability.

What has been behind the weakness in the market is above average inflation and a major shift in Fed policy. Nominal GDP has been very strong, up 8.5% in the first quarter and up 6.6% in the second quarter. After inflation though, real GDP is trending negative. Inflation, as measured by the Consumer Price Index, has come down from its peak of 9.1% in June of 2022 but still remains up over 8%, well above what the Fed considers its “neutral” rate of around 2.5%. In response to stubbornly high inflation, the Fed Funds rate has been increased five times so far in 2022 to a range of 3.00% to 3.25%. We anticipate two more hikes before year end which will leave the Fed Funds rate at a target of around 4.5%. We anticipate Fed policy may be able to transition sometime in early 2023 depending on the inflation data...

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Q3-2022 Quarterly Newsletter

More Pain To Endure

There is no doubt that this has been one of the most difficult years in recent memory for many investors. Nearly every equity index has fallen below the definition of a traditional bear market, a decline of 20% or more. Equally difficult has been the performance of the bond market which is supposed to insulate portfolios from market volatility. Even commodities, which started the year strong with heightened geopolitical activity, have begun to roll over. Crude oil has fallen -25% during the third quarter of 2022 and -35.7% since its March peak. Under restrictive Fed policy to mitigate heightened inflation, we will have to endure the pain until the Fed completes their mandate of price stability.

What has been behind the weakness in the market is above average inflation and a major shift in Fed policy. Nominal GDP has been very strong, up 8.5% in the first quarter and up 6.6% in the second quarter. After inflation though, real GDP is trending negative. Inflation, as measured by the Consumer Price Index, has come down from its peak of 9.1% in June of 2022 but still remains up over 8%, well above what the Fed considers its “neutral” rate of around 2.5%. In response to stubbornly high inflation, the Fed Funds rate has been increased five times so far in 2022 to a range of 3.00% to 3.25%. We anticipate two more hikes before year end which will leave the Fed Funds rate at a target of around 4.5%. We anticipate Fed policy may be able to transition sometime in early 2023 depending on the inflation data...

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Market Update

Last fall we advised you that we were expecting an adjustment period for the capital markets [see blog here]. An adjustment to slowing economic growth, decelerating corporate earnings, higher inflation, and new Federal Reserve policy measures. Market valuation models are adjusting to these new circumstances. Ultra-low interest rates, massive fiscal and monetary initiatives elevated valuations beyond actual long-term earnings potential. Under the Fed’s efforts to contain inflation, valuations will now align to actual long term economic growth expectations which remain attractive. The economy is still expanding at historical trend line GDP growth of 3% and corporate earnings are more representative of expectations at 8%.

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Market and Economics Observations Presentation

Market and Economic Observations

December 10, 2021

Covington recently presented their observations on the market and economy at our annual shooting event held at Pike Run Country Club. Please find our presentation commentary below...

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Opening of the Laurel Highlands Workforce & Opportunity Center

Last week, we had the pleasure of hosting our first board of directors meeting for the Laurel Highlands Workforce & Opportunity Center in their new building located at 310 Donohoe Road, Greensburg PA. My wife and I founded the non-profit organization to remove the barriers of structural poverty for individuals who are under and/or unemployed, or are in transition of employment. Our vision for the center is to serve as a hub of human services that will provide for the betterment of the human experience.

It is our hope to simultaneously address the labor needs of the businesses located in Westmoreland County. Our efforts will be collaborative, multi-faceted, and modeled after Bill Strickland’s Manchester Bidwell Center. To accomplish our mission we plan to leverage the talent and skills of our Board of Directors. Anne Kraybill, Executive Director of the Westmoreland Art Museum will be developing our arts program along with developing a music and video learning program with Endicott Reindl of the Westmoreland Symphony Orchestra. Dr. Christine Oldham, retired Superintendent of the Ligonier Valley School District, will be developing our curriculum and oversee our third-party childcare program. Dr. Dan DiCola will be our medical director and be developing our medical training programs. Tay Waltenbaugh will be supervising our social services programs, and Greg Daigle, while serving as our Director of the Center, will coordinate our manufacturing training programs for local businesses. Michelle Mcfall will serve as our student recruiter and Melissa Hipple will be serving the center as our medical program instructor...

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Market Update

In anticipation of heightened volatility, I wanted to touch base with you as I see the current economy and markets at an inflection point. Year to date global equities have continued their strong momentum from last year with many indices posting double digit gains so far in 2021. The S&P 500, the market index comprising of the largest US companies, has notched over 40 closing all-time highs in 2021 with one of the strongest recoveries coming out of a recession on record.

If you recall, early in this market rally from the March 2020 lows the central narrative surrounding the economy was that markets were disconnected from fundamentals and thus ripe for a “double-dip” sell-off. This did not end up being the case as economic data on almost every front has come in stronger than expected and 2021 corporate earnings are projected to come in 21% higher than 2019 levels. In fact, economic data has come in so strong that now inflation and overheating are a central risk to markets. And while the virus is still moving throughout the world, the vaccine rollout continues to progress, and the world is reacclimating to daily life.

Volatility has also been relatively tempered as the S&P 500 has gone over 200 days without at least a 5% drawdown from its peak. This market action has historically been an exception, not the rule...

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Market Commentary

The economic momentum continued its recovery from the pandemic induced lockdowns in the 1st quarter 2021 with real GDP expanding at an annual rate of 6.4% in the first quarter of 2021. Massive spending measures by the government, unprecedented Fed policy measures, overall strong employment recovery and greater vaccination rates drove strong economic activity, delivering strong S&P 500 operating earnings largely above expectations up 34.1% year over year trending at $187.43 from $139.00 at year end. Inflation reached 2.6% in the first quarter due to reopening demand along with material and product shortages. Consumer spending expanded 10.7% at an annual rate in the first quarter supported by strong household income as federal stimulus checks continue.

The rotation into cyclical – value stocks which started last September continued in the first quarter which helped thrust the S&P 500 to new highs despite consolidation in the mega caps. Equity markets are priced to perfection, however, on the assumption rates will remain low for a long time. I think you could see a serious correction in asset prices if the Fed must tighten monetary policy to combat inflation. The Fed has warned asset valuations are high and vulnerable noting the economy is a long way from their goals. While high priced stocks could eventually earn the profit necessary to justify today’s valuations under a completely opened economy, what happens when the fiscal stimulus is turned off? And how will the markets react to the beginning of the Fed tapering? Additionally, while the virus remains the greatest threat to the economy, what Black Swan events are unforeseen due to the excessive liquidity in the economic system and how will current inflation pressures play out in the economy?

The pandemic lockdown induced recession appears to have ended May 2020 looking at the Leading Economic Index and the ISM Purchasing Managers Indexes. Now we are at the beginning stages of a new cyclical bull market exhibited by an acceleration after the economy troughs. In this phase of the business cycle, the Fed keeps rates low while credit conditions trough allowing stocks to advance sharply until interest rates rise. U.S. stock sectors that perform well in the early cycle are typically materials, financials, industrials, information technology and consumer discretionary stocks.While economic growth looks good short term and earnings have rebounded strongly recently what happens when growth moderates after a fully opened economy returns to trend line growth? Asset prices will have to correct under a reversion of the means representing historical multiples...

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Covington Advisors' Cindy Jones Becomes CFA Charterholder

Covington Investment Advisors, Inc. is pleased to announce that Cindy Jones has earned the Chartered Financial Analyst (CFA) designation.  This designation requires successfully completing a series of three exams covering a wide range of topics related to financial analysis.  In addition to passing the exams, other requirements include having relevant work experience, submitting professional references, and adhering to the Code of Ethics and Standards of Professional Conduct of the CFA Institute.  Additionally, she holds the Series 65: Uniform Investment Advisor Law license.

Cindy joined Covington in 2012 as Assistant Portfolio Manager and currently holds the positions of Portfolio Manager and Chief Compliance Officer.  She earned a Bachelor of Science degree in Applied Mathematics with additional studies in Computer Science and Statistics from the University of Pittsburgh. ..

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Preparing for 2021

Although we try each year to forecast and plan for what the market will hold for us, 2020 again proved that a new year almost always brings surprises in one form or another. Being prepared with a plan as we have for you, and sticking to proven investment principles including creating diversified portfolios has proven once again the keys to achieving long-term financial goals. Please find attached our Economic Outlook for January 2021. 

2021-Economic-Outlook.pdf..

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Covington Welcomes MaKenzie Maust as Operations Associate

Covington Investment Advisors, Inc. is pleased to announce that MaKenzie Maust has joined its full-time staff effective July 1, 2020.  MaKenzie will be the Operations Associate responsible for Office Management including accounts payable and accounts receivable and will also train and assist with Compliance and Client Services.  She is a 2020 graduate of Indiana University of Pennsylvania with a Bachelor of Science degree in Accounting.

We feel MaKenzie will be a great asset to our company.

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Westmoreland County is Designated as a High Intensity Drug Trafficking Area (HIDTA)

As you may recall, in early 2017 we started the initiative to combat the Opioid Epidemic in our area and were seeking a Federal High Intensity Drug Trafficking Area (HIDTA) Designation for Westmoreland County. When we started this initiative, the overdose rate of deaths in our county was growing at 46% per year. The complete costs associated with these deaths is immeasurable in terms of the families affected and the lost contributions these individuals may have had in our communities.

Although our original efforts were thwarted due to political reasons, I am pleased to say that Westmoreland County has finally been designated a HIDTA by the White House’s Office of National Drug Control Policy. Westmoreland joins three other Southwestern PA counties (Allegheny, Beaver, and Washington) in receiving dedicated federal resources to coordinate federal, state, and local government to fight drug trafficking and abuse.

The HIDTA designation will allow Westmoreland County to have access to critical federal  funding to ramp up prevention efforts, decrease the availability of illicit drugs, to investigate and prosecute the leaders of drug trafficking organization and allow enhanced training opportunities for law enforcement. Overall, the funding will allow for a more cooperative effort between the local, state, and federal partners to combat the opioid epidemic and drug trafficking. ..

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June Market Positioning Update

Recent market action has many investors scratching their head. The seemingly increasing disconnect between the “real economy” and stock market has many wondering how strong of a foundation we are currently on.  

Click the link below to view a copy of our most recent analysis illustrating the current positioning of the market, some of the key metrics moving markets right now, and what uncertainties we believe lie ahead. We have also linked the most recent Schwab Insight explaining how some of the “real economy” developments are being factored in by investors.

June-2020-Market-Positioning.pdf..

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Covington Hires an Intern

Covington Investment Advisors is pleased to announce we have hired Ms. MaKenzie Maust to work as an intern effective June 1, 2020.  MaKenzie will be training with our Office Manager to learn the business processes of the Company and with our Compliance Officer on compliance projects.  In addition, she will assist our Client Services Manager as needed on client-related projects.

MaKenzie is a 2020 graduate of Indiana University of Pennsylvania where she earned a Bachelor of Science degree majoring in accounting.  She was a Student Accounting Association member at IUP and has experience working part time in the banking industry throughout the last two years.

We feel MaKenzie will be a great asset to our company...

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2020 Earnings Update

2020 Earnings Update 

Strict government-imposed restrictions including shelter-at-home policies did not come into place until mid-March across most of the country. This means that the impact to corporate earnings will not be reflected fully in first quarter numbers but more completely in second and third quarter results.

First quarter earnings have so far been fairly solid with most companies reporting results in line with initial expectations. As expected, most companies have been cautious with giving too much insight into what upcoming quarters numbers will look like. Roughly half of S&P 500 companies provided 2020 EPS guidance through the end of February. If early reporters are any indication than many of these companies will continue to not give 2020 guidance or withdraw previous projections. ..

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Reopening of the Economy

Reopening of the Economy 

The next step as we move through this virus pandemic is the reopening of the economy and a return to normalcy. Although the “reopening” of the economy is talked about as a singular moment where economic activity is resumed, we see it as more of a process that will take place over the next 2-3 quarters. The economy being “open” is one thing, but the return to normalcy is the more difficult time window to predict. It may take years for several aspects of the economy to return to pre-virus conditions. Financial markets, particularly the fixed income market, have likely been changed for a significant period of time on behalf of the unprecedented central bank stimulus taking place across the globe.

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Where We Are in The Life Cycle of COVID-19

Where We Are in The Life Cycle of COVID-19

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COVID-19 Case Growth Update

Case Growth

 

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An Update on Energy Markets

Volatility in Oil Markets 

One pocket of the capital markets that has seen elevated levels of volatility is the commodities sector, particularly crude oil products. On the supply side, recent negotiation fallouts have led to a price war being waged between Saudi Arabia and Russia. At a time where output cuts were trying to be reached by OPEC+, two of the largest oil producers on the planet have maxed out their production capacity flooding the market.

The demand side of the shock comes from the halt in economic activity brought on by the virus outbreak and government shutdown. Without people flying, driving, or transporting goods, demand for crude oil and refined products have dropped off the map. ..

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Economic Impact of COVID-19

I have attached our most recent update to the Coronavirus response and economic outlook. Find the update here>>04082020-Q2-2020-COVID-19-Impact-Update.pdf

 

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Covington Investment Advisors, Inc.
301 E. Main Street
Ligonier, PA 15658
Phone: 724-238-0151
Fax: 724-238-0148
Email: covington@covingtoninvestment.com

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