“Each minute we spend worrying about the future and regretting the past is a minute we miss in our appointment with life — a missed opportunity to engage life and to see that each moment gives us the chance to change for the better, to experience peace and joy.” – Thich Nhat Hanh
I got my first speeding ticket when I was 16 years old. Even though I did not like it, the cop did me a favor. I was going too fast.
The Federal Reserve is trying to do the same thing with the economy…prevent it from going too fast. They do this by raising interest rates.
What is the problem with growing too fast? An economy that grows too fast can have high inflation.
Unlike the rate-hike cycle of the 2000s and the very gradual increases in the 2010s, inflation is a big problem today. Therefore, we expect the Fed to increase interest rates quite rapidly. See chart:
An aggressive tightening cycle can generate volatility in two ways.
First, higher interest rates compete more effectively for an investor’s dollar — siphoning cash away from stocks. Second, higher interest rates can slow economic growth, which may put the brakes on profit growth.
Performance bears this out. With four months behind us, the S&P 500 Index is off to its worst year-to-date start since 1939, according to Dow Jones Market Data (WSJ).
Table 1: Key Index Returns
|MTD %||YTD %|
|Dow Jones Industrial Average||-4.9||-9.3|
|S&P 500 Index||-8.8||-13.3|
|Russell 2000 Index||-10.0||-17.0|
|MSCI World ex-USA*||-6.9||-12.0|
|MSCI Emerging Markets*||-5.8||-12.7|
|Bloomberg US Agg Bond TR USD||-3.8||-9.5|
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: Mar 31, 2022-Apr 29, 2022
YTD returns: Dec 31, 2021-Apr 29, 2022
*In US dollars
What will it take to stabilize the market?
High inflation, worries about the Fed, slowing global growth, and the ongoing war in Ukraine are well known concerns. The pullback in stocks and bonds reflects the high level of negative sentiment and, at least in part, stiff headwinds are already priced in.
Let’s pause for a moment. Take a look at the chart below. The little red dot represents the lowest point of the S&P 500 during that calendar year. The bar shows where the year ended.
Are we at or near the bottom? We don’t try to call bottoms or tops. The eloquent analysts on the financial news network may be smart, but they don’t have a crystal ball and neither do we.
We absolutely have seen ups AND DOWNS before, yet here we are.
Do you know someone who sold out of their investments during Covid? During the Global Financial Crisis? During the Dot.Com Bust? Black Monday? Based on the chart above, do you think that was a good idea??
I have heard people ask “how about selling now and getting back in when things settle down?” I have seen people do that and it has cost them hundreds of thousands of dollars.
Each color is an asset class, and each column is a year. There really is not a pattern.
Keeping balanced is like driving the speed limit. What is balanced for you is based on your overall plan. You are unique and your overall plan should be, too.
Think you can time the market? Check out the next few charts.
Changing your overall retirement plan because of market volatility is like me parking the car and riding a horse after getting that speeding ticket. I simply needed to follow the rules. A retirement plan is your set of rules, your plan to get you where you want to go.
If you have questions, call me at 843-970-1049 or email me at Jeremy@Riverbendwm.com or CLICK HERE for a phone appointment.
On the lighter side, the Myrtle Beach Seahawks are 2022 STATE CHAMPIONS!!!!!! It was an absolute grinder of a match. We won four courts and lost one. Three courts went to tiebreakers! Elliott and his teammate, Rivers Cahill, made the All-State! Great achievement by both of these young men and the Myrtle Beach Seahawk Tennis team!
Hope all is well with you and your family,
Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information. My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.
This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.