Normally this time of year we’d be asking if you’re enjoying this spring weather but, as we write this, it’s 93 degrees and humid. (John likes to remind me it’s beautiful & 75 in Boone, ha.) So, with that said, we hope you’re enjoying this summer weather!
The markets continued their downward trend in May. And while the NASDAQ was already in a bear market (i.e., indexes off -20% from their highs) the S&P 500 briefly entered bear market territory during May. Frankly, the story is the same as it’s been all year: inflation, Russia / Ukraine, inflation, Fed raising rates, inflation, and did we mention: inflation.
Interestingly, this year has been somewhat of an anomaly in that virtually no asset class has held up. As you can see from the chart below, the current YTD numbers for the indexes show bonds down nearly as much as the Dow. (Typically, if stocks are down, bonds are up). Even gold, which can be a safe haven, is barely positive for the year.
The markets have been oversold though, so we did see a rally begin on May 20th where the markets have gained back 10%. While some of the indicators we watch are showing that we’ve possibly hit or near the bottom, other indicators just aren’t there yet so we are staying cautious in not calling a bottom. Until inflation numbers give the markets some good news, we fully expect the markets to ping pong over the next few months.
On inflation: Inflation is predominantly a supply issue. As supply chains normalize (which we’re starting to see in some areas) we do expect inflation to moderate some by year-end from the 8%+ it’s currently at.
So where does all this put us? A couple of points to keep in mind:
- Non-recessionary bear markets average a 24% decline that last about 7 months. So far, at its worst, the S&P 500 has decreased by 20% while the NASDAQ has declined -30% in 6 months. The pain may not be over but we can’t help but feel we’re closer to the end of this than the beginning.
- If you’re retired and currently taking income that you don’t need from your investments, consider pausing those withdrawals until the correction is over. Your portfolio is built to withstand this volatility in the long term, but it helps lessen the impact of declines to pause distributions where you can.
- Earnings have continued to climb while Valuations have come down. This makes for an attractive time to buy high-quality companies that have upside potential. If you’re sitting on excess cash earmarked for long-term investments (4 yrs +) then continue to add to your portfolio. (Buy low / sell high)
Lastly, the FED will raise rates again in a couple of weeks and most likely again in July. We’ll continue to update you on CD rates and other attractive fixed rates as they continue to improve.
As everyone makes plans for summer vacations and travel with gas prices topping $4.45 a gallon, keep this useless fact in mind: To save money, you can ride your bicycle 214 miles from Winston to Myrtle Beach in only 17 hours & 23 minutes.
Thank you for being a client. We sincerely appreciate each and every one of the families we work with.
Have a great summer!
- Sean & John