What’s Going to Happen to the Market?
Over the last several weeks, I’ve checked in with clients to find out how they are feeling and chat about the economy, markets, and their portfolio. Here are some responses I received.
“Ahh, you read my mind, thank you for reaching out.”
“Awful!”
“Joe! Am I going to lose all my money?”
“Do you think we are going to go into a recession?”
“I’m not worried, just more curious.”
“Ignoring it all.”
“Can’t control it. Not selling.”
Wide Range of Emotions
There is a wide range in the responses from terrified to unwavering. It is a very emotional time in the markets and emotions cannot be controlled. However, emotions and feelings pass, so whatever feelings you may have about your investments right now will pass too. The news will change everyday, but your dreams, needs, and hopes won’t. This is not the time to make a permanent financial mistake because of a temporary feeling or emotion.
Market Returns
Over the years, there have been many rough starts to the investing year. Sometimes the results were positive by year end, other times they were not.
| Rank | Year | Event | Jan 1st - May 20th Return | May 21st - Dec 31st Return |
|---|---|---|---|---|
| 1 | 1932 | Great Depression | -35.8% | 32.8% |
| 2 | 1940 | World War II | -26.5% | 15.5% |
| 3 | 1970 | Vietnam War | -21.5% | 27.5% |
| 4 | 2022 | Current | -17.3% | TBD |
| 5 | 1962 | Kennedy Slide | -15.3% | 4.1% |
| 6 | 1939 | World War II | -13.0% | 9.0% |
| 7 | 1941 | World War II | -10.8% | -7.9% |
| 8 | 1973 | Oil Shock | -9.2% | -9.0% |
| 9 | 1974 | OPEC Embargo | -9.2% | -22.6% |
| 10 | 1931 | Great Depression | -9.1% | -41.8% |
| Source: JP Morgan |
There are many forces influencing the economy and markets. A few of them are supply chain issues, rising inflation, and increased interest rates. Last week the Federal Reserve raised rates by 0.75%, the largest increase since 1994.
Stay Invested
Regardless of what the Federal Reserve does at its next meeting, during this challenging time it’s best for you to stay invested in the market. In fact it would be better to invest more money if you can afford to do so. During the pandemic, many businesses had to change, spur innovation, and improve efficiencies. These changes in companies have been radically accelerated and as a result, they will increase profits over time.
To focus on a few companies, Microsoft doubled its budget for employees’ salary increases and increased equity compensation by 25%. Google is hiring more engineers, and Apple rewarded top talent with $200,000 in RSUs. These companies are investing in their talent and developing new products and services. Their businesses will emerge from a downturn stronger than before.
No Such Thing As Market Timing
Looking at the 31-year period from 1990 through 2020, history tells us that if you missed the five best days in the market, you would have missed out on 37% of the return versus had you just stayed in the whole time. If you missed out on the top 25 days it would have been a lot worse – you would have lost out on 79% of the potential gains.
That’s correct! Missing the best 25 out of the approximately 7,800 trading days from 1990 through 2020 would have made $1 turn out to be $4.38, while staying invested the entire time would have instead transformed $1 to grow into $20.45. Missing out on fewer than 1% of the trading days would have cost you almost 80% of your potential return. No wonder so few people can make money timing the market.
There was no prior signal that markets would move downward and there won’t be an indication when positive results return. You may look foolish for longer than you would like, but it would be a lot more foolish not to be invested when the inevitable recovery begins. If you are anxious about your investments, the economy, or anything else, reach out to schedule a free consultation.