Four Things To Do Right Now
3min video
Markets were suprised this week by higher than expected inflation numbers, causing the S&P 500 to slip into official bear market territory. In this three-minute video we review YTD performance of broad indices, historical performance during and after recessions, and four things to consider doing right now.
Video Transcript:
This week, various markets re-visited their previous YTD lows from back in mid-May. Let’s talk about why this is happening & the four things you should consider doing.
All major market indexes are well off their highs year to date; and as you can see here; the Dow, Nasdaq, and S&P 500 have all taken it on the chin from the beginning of the year through yesterday on June 13th.
So – why is this happening? On both Friday and Monday we experienced Significant declines brought on by fresh inflation data. The expectation going into the CPI report was that we would see a year over year inflation number lower than the previous month of 8.1%. Yet, the number printed at 8.6%.
So what does this mean? It means that the Federal Reserve is going to have to be even more aggressive in putting a lid on inflation. The key will be doing it in a way that puts the brakes on the economy without putting us through the windshield.
There’s a world where the Fed is able to provide a soft-landing without spiraling us into a recession. But to be devil’s advocate, let’s assume we don’t get that soft-landing and we do dip into a recession.
Luckily, we have historical data we can look at because recessions have happened quite a few times since WWII. As you can see here on this chart from Ben Carlson, most of the time, the broad stock market does well after a recession is over.
If we were to average out the forward returns for the market following a recession after one year it would be +20.9%, after 3 years +48.6% and after 5 years it would be over +256.4%. So that’s the good news! However, the bad news is that average recessionary correction since WWII is -31%. Or to say another way, the air goes out of the ballon faster than it goes in.
Over the short-run, the only certainty is, we will continue to see volatility.
If you are standing on the platform when the train has pulled away, it’s not going to back up for you. When the uncertainties affecting the markets today are eventually worked out, it’s not going to back up for you either. If you are a long-term investor, I’d be less concerned about getting on the train a stop or two early, and more concerned with missing the train altogether.
There are four things to do right now.
1. Sit tight ; now is not the time to abandon your investment gameplan
2. Buy selectively; there are opportunities to be found out there
3. Strategically take tax-losses; I published an article on tax-loss harvesting a few weeks ago about turning investment lemons into lemonade.
4. Use this as an opportunity to upgrade the quality of your portfolio; the challenge right now is not to pick the “best investment” but rather the “right investment” specifically for you
For my clients, we are already doing these things & we can expect some more turbulence through the rest of year here. If you have questions – please don’t hesitate to reach out.
As always stay the course & stay on point.
