Current Market Conditions: A Conversation with Brian Frederick
It has been a tough year in the markets with seemingly nowhere to hide. The S&P 500 hit an all-time high on January 3rd after a very solid three years in a row bringing double digit returns. While the run up was great, a decent downturn and bear market at some point was inevitable. We met that this last week when the bear market became official. By definition, that happens when the index reaches a drop of 20% or more.
No one was predicting this at the beginning of the year and even now there are a wide variety of opinions out there. Raymond James equity research has sliced the bear market numbers and differentiated between bear markets with a recession and periods without a recession. The average drop in a non-recession period is 24% and we are very close to that number. Therefore, it’s probably safe to say that we are closer to the bottom than the top, but no one can know for sure.
It’s not abnormal to worry when there are so many things that can occupy our minds: Russia/Ukraine (horrible loss of life but also energy and food inflation), China’s zero tolerance Covid response/shutdowns and Covid as whole (continued uncertainty about health along with supply chain problems exacerbating inflation), rising prices seen every time you fill your gas tank or buy groceries (real time reminders that reinforce this inflation), the common thought that the Fed is playing catch up to inflation via dramatic interest rate hikes, and a majority of people not happy with the political leaders in charge and their response to inflation. No wonder that consumer confidence fell off a cliff in the recent sentiment surveys. Also, the recent “Fear and Greed Index” from CNN is reading at 16 now and was at 11 one month ago (on a scale of 0-100 with 0 being the most fearful). Pessimism levels are high and the feedback loop is ugly right now. All of this feeds into “recency bias” and increases the feeling of uncertainty. That is why a plan of attack is key.
“Be greedy when others are fearful and fearful when others are greedy” is one of my most used quotes with clients from Warren Buffett. And if one can’t be greedy in these times (which means buying assets/investments when they’re low), I’d at least advise they do their best to tune it out and follow their long term plan.
Most people are nervous and understandably so. It is interesting to hear what in particular has them concerned. I hear a range of things and that helps me understand how I can potentially help and lend perspective. It’s our job to help direct that negative energy or fear into positive action. Our role as advisors is to provide perspective that is based on particular circumstances. Our expertise helps turn fear mongering of speculators into hope for investors. Whether doing tax loss harvesting, Roth conversions, adding beaten down shares to a portfolio, or adding something new - whatever it is; we are here to be your trusted partner as we weather the storm.
These are trying times for many and we value the opportunity to help our clients get through them. This is what our process is built for. We expect to get through this downturn like we have in every other one. If you have specific questions or needs, please reach out to your advisor directly.
Any opinions are those of Brian Frederick CFP ®, CIMA® and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance does not guarantee future results. Individual investor's results will vary. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
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