Look Out Below???
Hello and welcome to the Winter edition of Haider’s Hits – a seasonal blog post with timely insights to help you Invest with Clarity and Live with Purpose.
Winter is coming.
Game of Thrones fans will recognize that line as the motto of one of the families in in the show who were always preparing for the coming winter. The meaning behind was one of warning and constant vigilance.
Now whether you’re a fan of the show or not, when it comes to investing, vigilance and preparedness are essential and necessary elements of a good investment plan. If you want your financial plan to hit your goals, you need to know what to do when winter comes in the market. If you’ve been watching the news lately, you might be asking is Winter Coming and do I need to look out below for a big market crash?
I’d like to take time in this Haider’s Hits to address this question and discuss the recent volatility to put it in context.
The S&P 500 finished the month of January down 5.2%. At it’s low during the month, it was down almost 10%. Some argue that we were due for a correction as the last time the market had this kind of drop was over a year ago in September of 2020
In January the Federal Reserve made a distinct change in their policy. They went from what seemed like not caring at all about inflation to now saying they’re going to take active measures to fight it. That usually means increasing interest rates which could make it harder for stock market investments to keep growing at the rate we’ve seen in the past two years.
So now the big question the market is wrestling with is how many times the Federal Reserve raises interest rates and by how much.
Some analysts like Goldman Sachs are saying the Federal Reserve is going to raise interest rates 5 times while others, like Bank of America are projecting 7 rate hikes this year!
One thing is clear, there is a good bit of uncertainty which is a main ingredient for market volatility. As the analysts continue to wrestle with their projections, companies are starting to report their earning and give their outlooks for the year. Regardless of how many times the Fed raises rates or by how much, businesses will do everything they can to manage their costs and profit margins. Ultimately, the stocks of the companies that do that well should get rewarded and those that don’t will most likely be punished. Market prices will fluctuate as these different elements reach a point of equilibrium.
The big takeaway is this – we can expect more volatility.
The good news… is that this volatility is quite normal.
In the body of the email you received, you should see a chart from our partners at JP Morgan. The grey bars show the calendar year return of the S&P 500 and the red dot is the largest drop during that calendar year.
You’ll notice that every year since 1980, the market has seen large drops during the year even if it finished the year in high double digits. On average, the S&P 500 has seen an intra-year drop of 14% every year for the past 41 years… and this year is sure to be no different.
We’ll continue to be mindful with your investments in the shifting landscape of Fed policy changes and fundamental earnings data. But the bottom line is this – make sure you have a long-term financial plan to meet your goals, so you don’t have to worry about looking out below in any given normal market sell-off. As always, please reach out if you’d like to review your plan and long-term goals.
Thanks for joining me today. And if you found this helpful, please pass it along to your friends and family and I look forward to sharing more in the next edition of Haider’s Hits.
