09/2024 - Don’t Blink
Full written article below.
Over the years I’ve been honored to be named in different industry publications for the work completed for clients. In 2023 I was listed in Fortune Magazine and listed as a Five Star Wealth manager. Now in 2024, I’ve been named again as a Five Star Wealth Manager. Thank you to all my clients for your continued trust and support.
Don’t blink because you may have missed it. From July 16-August 4th the S&P 500 dropped 7.86% and has since recovered.
www.Kwanti.com
This very short but quick decline in the market sparked all kinds of concern around a potential recession. In fact, just doing a quick Google search from last month revealed endless articles, just see for yourself.
There are always reasons for concern in the market, some highlights are listed below just from the last month!
- Weaker Jobs Report - BLS.gov
- Concern over the Interest Rates from the Federal Reserve. Reuters
- Buffett/Berkshire Hathaway selling some of their Apple stock position. Of course, most of the investing world just read the headlines about the sale of Apple and didn’t think to question why were the shares sold? Forbes.com
- Yen carry trade unwinding, by the way, I’m never surprised when a highly leveraged foreign currency transaction goes sideways. ForeignPolicy.com
- VIX Volatility Index, commonly referred to as the Fear Index hit it’s third highest level ever recorded on Aug 5th, 2024 of 65. The two higher levels were from the Financial Recession and the Covid Recession. Yahoo Finance
But just sit for a moment, aren’t there always reasons for concern in the market?
I’d argue yes. Bear with me as I make a final point on this. Markets have historically moved in two directions, up and down. Historically, they more up a whole lot more than down.
Since the end of WWII, there have been 13 recessions, that’s about one every six years and the average duration of the recession has been about 12 months. So over this 79 year history, the market was in a recession about 13 years out of 79. So what was the market doing in the other 66 years? Well if it’s not in a recession, the market is likely increasing in value. Recession Source
Since September 1945 – August 2024, the S&P 500 went from a price of 15.84 to 5,478, an annual compounded return of 11.21% Source
But don’t let me cherry pick data, because from…
1955-present, the S&P 500 return was 10.43%
1965-present, the S&P 500 return was 10.33%
1975-present, the S&P 500 return was 11.81%
1985-present, the S&P 500 return was 11.40%
1995-present, the S&P 500 return was 10.16%
2005-present, the S&P 500 return was 10.30%
2015-present, the S&P 500 return was 13.59%
**All dates cited are using August as start and 8/31/2024 as the present, Source**
So yes, the markets go down in value, absolutely; and historically, markets have increased in value more than they have decreased in value. What’s more, I’ve yet to find anyone or any firm who have consistently been able to time the market, knowing when to get in and when to get out. Because of this, my full encouragement to all clients is to not try and time the markets, to stay in, to ride it out.
As Peter Lynch once said “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” – I’d add this is also true for recessions.
So in closing, let me pose the million dollar question, “When is the next recession?” I haven’t the foggiest idea, but I will guess that whenever the next recession occurs, unless we think the world is going to end, I’ll be encouraging to stay invested.
Additional Data: Each month I get asked by clients what additional resources I’m looking at. Please hear me in stating I’m not trying to predict anything whatsoever, just some of the interesting data I’m watching.
- Should I invest in Private Equity? Whenever a client asks about buy Private Equity, because it comes up and is very attractive in title, I like to send this video clip from Warren Buffet and the late Charlie Munger, Video
- United States Energy Production – Most are surprised to learn that the US is a net energy producer. The charts are incredibly impressive.
- Presidential Election Concerns? – How will your investments perform with this or that President? A very normal and well-founded question. For anyone who has even had a hint of this question in their mind. Please do yourself a favor, take 5 minutes right now and read this short but effective article from JP Morgan.
- Trillions in Money Markets – At it’s highest level ever reported, there’s now 6.4T in money market funds. In the investing market, this is called “Dry Powder.” These are dollars enjoying higher levels of interest than in years past. But ask yourself, what do you think will happen when/if the Federal reserve starts to cut interest rates and banks start paying less in interest on these accounts? Do you really think people will just continue to hold their funds with less interest, or do you think they’ll look for other alternatives to make money? My guess is assuming interest rates come down, these people will start to move some of these funds back into the broader market. So what do you think would likely happen to market prices if this does occur?
- Breakeven Inflation Rate - 5-Year Breakeven inflation rate is now 1.95%. When you study this chart, you’ll see it goes back to 2004.
- Federal Reserve Balance sheet – The Fed continues to follow through on it’s statement made in May 2022 of reducing the balance sheet by $47.5 billion dollars per month in months June-Aug 2022, then reducing the balance sheet by $95 billion dollars per month. We’re now down to $7.1T dollars in the balance sheet, last time we saw this was November 2020 levels and declining.
In closing: We of course cannot control what the market does from here and we cannot predict when the next market downturn will occur. But we can control our behavior to these outside events and continue to stick with our long-term investment strategy.
As always, if you have any questions/concerns please contact me.
David Hobbs, CFP®
Wealth Advisor | Owner
Hobbs Wealth Management
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Standard & Poor’s 500 (S&P 500) - a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
Russell 2000 – The index measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 and includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
MSCI ACWI ex USA – The index measures the performance of the large and mid-cap segments of the particular regions, excluding USA equity securities, including developed and emerging market. It is free float-adjusted market-capitalization weighted.
Federal Funds Rate - refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.
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