Last week, after a flood of international news, the stock market fell to its lowest point since November 2020. From the unexpected tax cuts announced by the UK government causing the pound to plunge, to the inexplicable damage to the Nordstream gas pipeline. In addition, despite declining stock prices and a rise in the likelihood of a recession, the Federal Reserve has maintained its hawkish stance. The future is incredibly foggy, as our CIO Benjamin Lau pointed out last month. It’s impossible to predict how these things will turn out or whether the Fed will be able to achieve the “soft landing” they have been talking about for the past few months.
However, there have been a number of things that have shaken the economy throughout the years. But the market and economy have always rebounded stronger from every event. There is plenty to learn about investing, but in general: if you stay invested, in the long run you will be rewarded. The graph below from brokerage firm, eToro, shows the percentage declines in the S&P 500 during the ten bear markets dating back to the 1950s and the percentage increases during the ensuing bull markets. Bear markets are painful but usually don’t last that long while bull markets tend to last multiple years. As you can see, the gains are exponentially larger than the losses. Because they have the most asymmetric upside, investments made in these times are likely to turn out to be the best for many years to come.
Over the next couple months unemployment is expected to rise as the economy contracts. The Federal Reserve has stated that unemployment must increase in order to bring down inflation, therefore this is ultimately inevitable. There is a common perception that a recession coupled with an increase in unemployment is always bad for stocks, but J.P. Morgan’s data on this begs to differ. The charts below show recessions since 1960. In five out of the nine recessionary periods, the S&P 500 (green line) performed well despite increasing unemployment rate (purple line). This is just a reminder that stocks are an indicator of what is to come, not what is happening now. And so, a lot of what is expected may already be priced in.
The aforementioned information won’t provide you with much insight into the market’s short-term trajectory. Nobody can foresee that. We might already be at the bottom, or we might sink much more. Research shows that over the long run, time spent in the market yields better return than timing the market. As Warren Buffet famously said, “be fearful when others are greedy, and greedy when others are fearful”. As a reminder, these downturns are factored in your financial plan, which serves to guide you in realizing your long-term goals. Our Financial Planning team is ready to assist you to review your plan, so please give us a call or schedule your appointment. At the end of the day, it pays to remain invested during periods when it’s most difficult to do so.
Earlier today we sent out the invitation to our next Zoom webinar, “Apriem Market Update 2022: Strategy Amid Volatility” featuring our Chief Investment Officer Benjamin C. Lau, CFA, and our Investment Team. We will be discussing the current market volatility, your portfolio strategies and answer any questions that you may have. The webinar will take place on Wednesday, October 12, 2022 at 1:30pm. Click here to register and learn more.
Andrew M. Ochoa