Written by Ryan Hitchcock (Financial Advisor, High Point Capital Group, Milwaukee, WI)
This year has been volatile, let's all take a deep breath.
However, volatility is a part of normal market trends. The S&P 500 has gone through 26 bear markets over the last 94 years. Each year, one can expect the market to experience a significant correction, which for the S&P 500 has averaged approximately 14% since 1980.
History has shown that those who chose to stay the course through these tough times were rewarded for their patience more often than not.
Economy - The Two R's Driving The Market
My quick take: There are numerous headwinds in the market and economy right now, but from my view, the two main drivers are:
The Fed raised short-term interest rates by 50 basis points to a target range between 0.75% and 1%. That rise in rates follows a 25 basis point hike in March. The last time the Fed hiked rates by 50 basis points was in 2000. The Fed funds futures market is now pricing in at least two more 50 basis point rate hikes at each of the next two FOMC meetings. The Fed also announced its plan to begin shrinking its balance sheet by more than $1 trillion a year. These steps are all part of the Fed’s attempt to normalize monetary policy to combat inflation, which is currently running at four-decade highs. - Clark Capital
2. Recession Risk:
According to Bloomberg's most recent survey, the consensus among economists puts the odds of a recession starting sometime in the next year at 30%.
- Economist Brian Westbury & his team at First Trust think this pessimism is overdone.
- PGIM Chief Executive Officer David Hunt says, "We’re only one hydrocarbon sanction away from a recession starting."
Let's say there is a recession. How has the market performed during recessionary periods you may be wondering? Hint: it's not as bad as you may think. Take a look for yourself here - O'Share's
My quick take: Every investor has a different risk tolerance and time horizon for their investments, so what you "should" be doing during down markets will be specific to those goals (if anything at all).
However, I've been deploying these strategies for clients:
- Risk mitigation
- Buying quality
OVERALL - Keep Calm and Remain Diversified
Financial Planning - Strategies to contemplate during a down market
- Roth conversions
- Fast-forwarding 2022 investment goals
- Tax-loss harvesting in after-tax accounts
- Age 59 1/2 in-service 401(k) rollovers
- What Happens to Twitter in Your ETF's - ETF Think Tank
- In the last 20+ years, 21 of the 25 worst trading days were followed, within a month, by one of the best 25 trading days. - AMG
- Warren Buffet's $51 Billion Stock Market Shopping Spree - Forbes
- Investments Keeping You Up At Night? Managing Stress During Market Volatility -rhitch.com
If you have any questions about how to plan for inflation in your personal situation, please don't hesitate to reach out!