Our last commentary discussed how the world has put us in a more defensive strategy for the time being to try to mitigate what is going on in the markets, but this doesn’t change our long-term philosophy when thinking about investments.
For those who like more information, here is a little historical perspective, although we all know the disclaimer that past performance is not indicative of future performance.
The S&P 500 and Dow Jones Industrial Average indexes are both down around 10% from their record highs set earlier this year. The Nasdaq is down roughly 20% into bear market territory. A lot of these events that are causing the market to turn in this downward trajectory are more emotional based than they are fundamental based. Companies’ fundamentals are not turning for the worse, in fact we have still seen companies have strong earnings and revenue reports this year. But what is offsetting this is the news we hear on a daily basis whether it be from Ukraine, The Federal Reserve, or supply chain constraints caused by the post pandemic opening…and now more Covid shutdowns in China.
History often repeats itself and is a good place to start looking when trying to see how markets have reacted in different situations throughout time. Since the inception of the Nasdaq in 1972 it has averaged a six month return of 10% and has ended the six months return with positive gains after the Nasdaq has fallen into a bear market (a 20% decline from its recent peak). The Dow Jones has an average six month return of 5.2% after falling into correction territory (a 10% decline from its recent peak). This is important to look at, we all see the news everyday filled with negativity, but we have to remember this isn’t something that has never happened before. We have built client portfolios based on meeting your goals whether they be in the short, mid, or long term, and timing the market is impossible. The investors that say that they are lucky investors, not skillful, that is why it is important to think about statistics like these so we can have a better understanding of how markets react when they reach different points.
When thinking about your investments long-term this event can create some good opportunities. Everything that has happened in the market so far this year has created an exacerbated sense of a short-term mindset and that’s all anyone can think about. Members of the Barron’s Roundtable see value in parts of the technology, industrial, and health care sectors. When looking at investments sometimes it’s better to look at the fundamentals to get a better understanding than to just look at the market as a whole. For a lot of investments, the fundamentals have not changed, and they are expecting a great outlook for 2022 despite the overall market being down.
The collective “we”, people that are invested, love when markets are going up. It is easy to watch. When headlines are more negative, it gets harder. Buy low, sell high, and never the other way around. And if you relate more to the British, Stay Calm, Invest On. When the math still works, the registers are still ringing, and the companies still have a bright future, emotional markets need to be managed and not traded. During these uncertain times it is our job to protect and preserve the assets you have trusted us to manage. We want to stay smart and active when the market is volatile and keep in mind what the long-term picture will look like.