Special Commentary - Markets in Turmoil
We’re not in Kansas anymore. Almost 2 years ago we entered a new global paradigm. How people live their lives, how viruses spread, and how our new world copes and reacts with the only constant there has ever been. Change. For equity markets, we are now in a correction. Even if you compare today’s close with recent highs, it looks even worse. While the Dow was down over 1,100 points earlier in the day, markets staged an amazing comeback and the Dow managed to close up a little more than 99 points. Better, but not out of the woods…
While it seems like the Wicked Witch or some other negative forces have markets in their grip, let’s not forget just one day in March (the 24th) back in 2020 how things can change. That day, major US Market Averages experienced their largest point gains in history.
- Dow up 2,113 Points or 11.4%
- Nasdaq up 8.1%
- S&P up 9.4%
What does this mean? Well, Dorothy had one major obstacle getting to the other side of the rainbow. Today we have many – Inflation, Labor & Supply Chain Shortages, Interest Rates, Fear & Uncertainty (Volatility), and Conflict in Europe
Does this mean we have seen the bottom? Probably not. Should we be optimistic? Of course…
Let’s examine each one of these and understand their respective impact –
1. Inflation- Looking back, we’ve witnessed a spike in inflation of about 7%. This not only means that just about everything we buy is more expensive, but goods being produced are more costly to manufacture as well. This has affected interest rates, economic models, and has even led to a rotation in the type of stocks that perform well (value vs. growth).
2. Labor and Supply Chain Shortages- Someone must do the work. Not only are the goods becoming more expensive, but the labor to produce those goods is in short supply. This is also the case in the service sector. In turn this leads to greater expense, reduced revenue, lower profits, and thus lower stock prices (in theory).
3. Interest Rates- They are going up now and the Fed has said they will start to raise rates to stem inflation. Like the other 2 previous factors, interest affect the cost of capital, make borrowing (growth) more expensive, and lead to analysts and economists lowering their estimates on the future growth prospects of stocks.
4. Fear & Uncertainty- This is the human factor. No one can predict the future, but these factors are very real and affect decision making across the global spectrum. We watch the VIX (Wall Street’s fear indicator), and we see an 18-month high of just below 30. Many traders and investors thought cryptocurrency was a can’t miss versus traditional investing. Today, the adage of “all your eggs in one basket” rings true with Bitcoin off its $68,789 high down to $36,136 or off 29% in the past month.
5. Conflict in Europe- Markets in Europe sank Monday over increasing tensions between Russia and Ukraine and the ongoing threat to the region of armed conflict. Until things in the region cool off, the Ukraine-Russia standoff will be an ongoing concern that weighs on markets.
Are these factors or events new? No. Events and crisis has always been with us. Markets have weathered challenges like these quite well over time.
Isn’t this time different? Each time is different, but history shows us that investors who remained objective and invested for the long term were rewarded for their resolve and patience.
If we simply compare today’s close to the March 23rd, 2020, low at the beginning of the COVID-19 Pandemic, you would still be up over 85%. Back then we were concerned with $30 a barrel oil and surging unemployment.
As always, the question begs, “Where do we go from here?” and “What do we do now?” Well, it’s not as easy as clicking our heels a few times. Dorothy didn’t have a globally connected economy to contend with or a 24/7 news cycle to anticipate. We still prefer to take a well-diversified approach to investing. We are always evaluating portfolios and rebalancing them to keep our clients’ objectives and risk tolerance in line and on course towards their goals. We know it can be a challenge or even sometimes quite scary. Our yellow brick road definitely has some threats and unsavory characters along the way. We are investors. Our clients trust us to advise and invest. We are not into day trading or trying to time the markets. It’s more about time in the market.
As we’ve said before, when markets turn around, and they usually do, we often see sectors or industries that tend to lead the way. Just like early 2020, we may see these names eventually lead us out of this correction and current market crisis. During times like these we want to reiterate our consistent message to clients – we are in this for the long term and believe the following are critical to being a successful investor and accomplishing your goals and objectives -
1. Stay Invested
2. Properly Diversify
3. Appropriate Asset Allocation
While we’ve made many proactive adjustments to portfolios, there will be significant volatility ahead. As we have said before, the 24-hour news cycle, social media, and localized hysteria can and will take its emotional toll. Market swings up and down, massive volatility, and watching your portfolio can be unnerving. It’s normal to be afraid, and its human to want to act so we realize it’s also hard to watch or sit on the sidelines feeling nervous or powerless. With that said, we do need to be mindful that emotions don’t always help us make the best decisions.
Markets reward discipline and the ability to stay invested for the long term. While the 2007-2009 Financial Crisis felt like the end of the World at the time, eventually markets recovered and proceeded to rally 400% over the next decade.
We do our best during these extraordinary times to be in constant communication with clients and partners, and welcome your calls, emails, and text messages. We are always available to discuss questions or concerns you may have. Our entire team works relentlessly to monitor and assess situations like these and ensure our clients and their portfolios are positioned to navigate this or any crisis and continue on the path to achieving long-term goals. We encourage your questions, comments, and concerns. We appreciate your trust and confidence in us always.
The Helium Advisors Team
Sources/Credit – Amundi Asset Management, BBC, CNBC, Coinbase, MarketWatch, Richard McConochie, YCharts
*Helium Advisors is part of the Helium Financial Group of Companies