Year to date, the S&P 500 Index is negative 17%; the technology laden NASDAQ has lost greater than 26%. Sectors of the fixed income market – generally providing consistent returns are negative 5% – 8%. However, during the last 30 days, near term rotation from equities to fixed income has stabilized their pricing.
Painful as these pullbacks are, they are not surprising. They are frequent and at times persistent. As advisors, we react in measured fashion to market “pullbacks”, “cyclical rotation”, “correction” or any other favorite term used by talking heads. Shelby M.C. Davis provides useful perspective:
“History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.”
This is the third material equity market correction since 2018. When experienced in real time, it’s difficult to foresee any catalyst for stability. However, the December 2018 and March 2020 corrections were followed by complete market recoveries.
Utilizing market reversals for strategic planning is a core part of our process. For example, times of market stress may provide the opportunity to rebalance your portfolio, tax loss harvest and consider Roth IRA conversions.
We believe that market declines and broad “risk-off” cycles help clarify and define your risk profiles. They also serve as strong reminders of the need to maintain ample liquidity and diversification within your portfolio.
Our recommendations give strong consideration to current risk factors including the Russian/Ukraine incursion, rising interest rates/inflation and corporate profit warnings. Although revenues generally remain strong, pricing pressures (Target, Amazon and Cisco to name a few) have resulted in significant loss of market capitalization.
History does not always repeat itself, but it is an invaluable guide. Democracy and capitalism have provided a significant opportunity for the wealth creation; in our opinion there is no greater option. A silver lining of the current inflationary environment is that monetary policy has generated higher government bond rates – an opportunity for capital preservation/conservative portfolios to earn absolute yields that are higher than they have been in several years.
Please join us Monday, May 23 for our webinar where we will discuss detailed data and statistics relating to the current market correction and our views of economic indicators.
Please don’t hesitate to contact us to discuss any concerns. We thank you for your trust and hope to continue providing useful guidance during this difficult investment climate.
We end with a favorite quote:
“The stock market is a device to transfer money from the impatient to the patient.”
Warren Buffett
