Piedmont & Churchill “If you are going thru hell – keep going!”
Agreed - Perhaps Churchill was addressing a slightly bigger challenge in 1940 than the temporary recent slump in the markets but the recent intensity of investor frustration calls for similar sentiments.
Vine Spoiler Alert:
“Calm the nerves, Fight the urge to throw in the towel and Stay invested”
As Q2 statements are hitting in boxes - we are getting quite a bit of “Hey Doug – What the heck happened?” (Editing some of the recent client inquiries as this is a family show). Just when we thought Q2 couldn’t possibly look or feel worse for the markets– JUNE happened!
During the last month of a turbulent spring - Investors escalated their hatred towards stocks, bonds, as well as seemingly every asset class! As has been proven repeatedly – Markets hate uncertainty and boy do we have some temporary uncertainty! Here's were we feel we are at:
- Federal Reserve and Interest rates: this weeks FED June meeting minutes supported the broad based feeling that 75 basis point increase is coming in July…..with another 50 basis points coming in September. There is endless speculation (which is nothing more than educated guessing) as to what the FED will do with interest rates in the months to come…..although NO ONE KNOWS – here’s a hint - The FED will continue to raise rates in an effort to mitigate inflation but not at the ultimate expense of a growing economy. Is growth slowing a bit – absolutely – but both the consumer and corporate balance sheets are strong – there is money to spend. Mid term elections will influence fall rate hikes!
- Earnings, Earnings, Earnings: Q2 Earnings will soon be reported – as well as corporate outlooks for Q3 and remainder of 2022. Many companies are expected to guide softer earnings going forward - some of which is reflected in the market. Traditionally market prices / valuations are forward looking – reflecting what institutional investors anticipate will happen. This is still the case – markets have priced in both interest rate increases AND lower earnings…. but the question remains – has it priced in enough weakness - the next 3 weeks will tell? With Stock index's down at 20+% YTD and the Barclays AGG (Bond) index down 10+% we all are asking...Has the market dropped enough to build a base from which to climb up – I don’t think so but we are significantly closer to the bottom than the top!
- “The Recession is coming – The Recession is coming!”: is it here? Is it coming? If so, when? NO idea! However, here’s a thought - much like my waistline – economies spend more time “Expanding” than they do “Contracting” yet investors tend to spend more time anticipating and worrying about the contractions than patiently managing their emotions – remaining invested and thus positioned to fully participate in the eventual return to expansion. Economies expand – periodically resting (contracting) but they will and do return to expansion. NO one sends a memo announcing when the markets will turn. Calm the emotions and ride thru the contractions. Economists don’t have the same vision and intel that Paul Revere did.
- Lions and tigers and bears – oh my”: AKA – Russia/Ukraine, China Closure and Supply Chain disruptions – all real front burner issues and all will be in the rear-view mirror in time- when? Again no one knows when - but these current headwinds will be overcome....and replaced by new headwinds - and the markets will persevere!
- Series of Peaks and Valleys will continue: Markets will bounce aggressively over the coming months – save the emotional pain – hold off on cheering the upside moves and avoid the temptation to throw in the towel and sell into market weakness. What causes the sudden change of sentiment – generally nothing meaningful – a sound bite, a strong opinion, an interpretation of a company report – all influence emotional spurts of buying or selling. If you have some cash – I’d keep it in cash for now but conversely – I would not sell stocks to raise cash in hopes of buying cheaper later.