This 3rd Week of July 2022 Thoughts: What I learned in the Bear Market of 2022.
Updated: Sep 23
Bank of America cut the S & P 500 forecast for year-end 2022, predicting we’ll be 3% LOWER by New Year’s Eve. 2022 will continue to be volatile if this prediction unfolds.
Fed Fund Watch: Look for the Fed to raise interest rates by .75% July 26th
10-Year Yield: 2.96% last week, 3.01% this week.
RATE WATCH: Schwab Value Advantage Money Market SWVXX 7-Day SEC Yield: 1.16%.Read about Schwab’s Money Market Funds here: Money Market Yields are on the Rise
Does anyone want a COLA? New 2023 Social Security COLA estimate jumped to 10.5%, up from May’s 8.6%, the biggest since 1981.
Our Fund Focus: Nuveen ESG Mid Cap Value: Mid-caps are small enough & nimble enough to react and respond. NUMV.
What I learned in the Bear Market of 2022…and it’s not over yet
1. THIS IS NOT ROCKET SCIENCE: there are tools to help prepare for every stage of the economy. The trick is to know what is important to look, and plan for.
2. Chart followers and strategists like me got there first: the charts are our friends.
a. Remember your macro-economics: Cash can be King for a while.
b. The new round of traders kept buying dips…all the way down. The trick is to wait, and dollar cost average up.
3. The FED can get it wrong, for a LONG time.
a. When rates are low, money is EASY and stocks are the only game in town.
b. When the FED has this much debt to reduce, stocks don’t like it.
4. Interest rates are important: when rates are rising, stocks & bonds don’t like it.
5. Stock & bond prices are saying loud and clear what inflation meant.
6. There has never been a recession when corporate balance sheets are strong, like today; when consumers are in this good a shape and the job market is so strong.
7. This is one of the clearest markets to analyze since I’ve been an advisor:
a. When the Fed Fund Rate goes from 0% to 3% you are in for a long slog.
8. Look for the “tells”: like cryptocurrencies becoming the darling; tech stocks at super high levels: Robin Hood signing up novice investors and companies with no profits.
9. Sometimes there is nowhere to hide but know we’ll get through it.
10. It is really difficult to know when recessions begin and when they end.
11. Lean on technicals: there are many things we know, absolutely, for certain.
12. Focus on the primary trend: we are in a statistical lower trend line
13. When the S & P is below its 10-month average level, there have been 57 of the all-time best / worst days. Continue to expect horrible days, and then, good days!
14. Volatility will continue but the key is find the businesses that will still be standing when the bottom finally here and to look for the next business cycle.
15. You gotta have a plan going in and be ready to come out.
A picture is worth 1,000 words. When you follow the money, it is like having a google map on a road trip.
Why does this matter to you? When Wall Street gets pessimistic, pay attention: we have only seen this pace of corporate earnings downgrades 4 time before. Stock prices move up and down with corporate earnings and who better to help us see into the future than the folks that run the companies?
The chart below shows sixteen calendar years of highest inflation: eight were positive for the S&P 500 Index and eight were negative: 50%-50%. To “guess” what this time will look like, we would need to know in advance, what the drivers of inflation are going to be this time. 1973 to 1981 was one of flawed monetary policy of previous years (similar to today) where interest rates were kept too low, too long. The global energy crisis and ballooning U.S. government spending on the Vietnam War resulted inflation, a stagnant economy, and rampant unemployment — “stagflation.” The OPEC embargo of 1973 drove up oil prices across industries, hitting stocks hard. The end of the Vietnam War in 1975 carried the hope that government spending—a key driver of inflation—would be reined in, leading to the rally in the S&P that year. The dramatic increase in the federal funds rate in 1979, led by Fed Chair Paul Volcker, may have initially boosted confidence in the economy (and stock prices), but it led to recessions in the early 1980s. Volcker’s relentless interest rate increases did “break the back” of inflation, but with a price.
S&P 500 Total Return During 16 Years of Highest Inflation: 1922-2021
Source: Bespoke Investment Group
Why does this matter to you? There is always something: the unpredictable nature of stock returns when inflation is high points to a basic principle of investing: being tactical (aka raising cash when inflation is rising) combined with a plan that is based on your financial goals, time horizon, and risk tolerance is the way to go.
Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice and is informational and entertainment purposes. It is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.
Julie is an Investment Advisor Representative of Sustainable Advisors Alliance, LLC (SAA, LLC): Advisory services are provided by SAA, LLC.
Registration with the SEC does not imply a certain level of skill or training.