September 2022 Research Update
Digital Department

The Federal Reserve lifted the fed funds rate by 0.75% at their September meeting. This was the third straight 75 bps increase. This brings the benchmark rate to 3.0%-3.25%, a level not seen since the Great Financial Crisis in 2008.

So why has the Fed been so aggressive? The Federal Reserve has a dual mandate to foster economic conditions that maximize sustainable employment while also achieving price stability. With inflation running at over 8% year-over-year, the Fed is working to bring that back towards its longer-term goal of 2%.

Prices are set by the market – that is to say, supply and demand. While the Fed can’t control the supply chain issues or product shortages that initially sparked this inflationary period, they do have a hand in shaping demand. As the Fed raises rates, demand for goods and services will slow as borrowing becomes more expensive. The best example of this is the housing market. Mortgage rates have doubled from 3% to 6%. This will inevitably decrease demand for single family homes which should lead to a decrease in home prices. While the Fed’s methods aim to solve the inflation issue, rising rates will lead to a slowing economy.

Both the stock and bond markets have substantially corrected this year due to the rapid rate increases and prospects of recession. Historically, bonds become a safe haven during times of volatility or stress but with the swift increase in rates this year, bonds have not provided traditional downside protection.

The good news? Markets are anticipatory and will begin to adjust prior to the rate cycle ending. While rate increases are likely not yet over (Fed officials expect to end the year at 4.25-4.5%), our view is that we are getting closer to a peak in the fed funds rate.

After building up a large cash balance over the last few months, we have been methodically putting the capital back into the stock market in anticipation of this inflection.

As the calendar turns toward fall and your furnace turns back on, you might notice that it costs more to heat your home than in the past. U.S. natural gas prices are up 101% thus far in 2022. Across the pond in Europe, it is far worse as they have seen a 185% increase and the prospects for this coming winter remain bleak due to political tensions with Russia.

Russia is the world’s second largest producer of natural gas with many countries reliant on its exports. Prior to the War in Ukraine, Russia accounted for 32% of Europe’s natural gas consumption. Knowing this, Russia has used its natural gas supplies as an economic weapon against Europe throughout the Ukrainian conflict. Supply to the West has been cut significantly and threatens to impact Europe’s ability to heat their homes and keep their factories running this coming winter. Europe is scrambling for solutions and looking into other sources of energy to meet their demand needs.

The fact of the matter is the world energy order will need to change. Supply lines, production, and infrastructure will have to be reorganized. Our Concentrated Equity Alpha (CEA) and Large Cap Yield (LCY) holding, Linde (LIN), is a key enabler of the global energy infrastructure and will be a part of the solution. For example, Linde provides engineering services to liquified natural gas terminals, supplies key industrial gases to refiners, and is the world’s largest producer and distributor of liquid hydrogen.

Many believe hydrogen will play a critical role in reshaping the energy landscape. Linde (through its merger with Praxair) has had a large presence in Western New York for decades. In early September, the company announced a major investment in a renewable hydrogen facility in Niagara Falls, NY. The plant will double Linde’s U.S. capacity and positions the company as the dominant provider of clean hydrogen. These continued investments help to ensure that Linde will play an important role globally in reorganizing energy production and distribution.


Best Regards,
The Sandhill Research Team



Disclosure: This has been prepared for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by Sandhill Investment Management.  Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission that is not affiliated with any parent company.  Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information.  All statements made regarding companies, securities or other financial information contained in the content are strictly the beliefs and opinions of Sandhill and are not endorsements of any company or security or recommendations to buy or sell any security.  Holdings discussed are part of our Concentrated Equity Alpha (“CEA”) and Large Cap Yield (“LCY”) investment strategies.  These investment strategies have the potential for profit or loss.  For a full list of strategy recommendations for the preceding year, please email your request to

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