Market Perspective Going into the Weekend
The US economy is clearly experiencing a correction this week. The last blog I published discussed how the majority of investors experience significantly greater emotion to losses than the joy they feel with gains. It is important to keep this behavioral finance fact in mind as we confront our account balances in the coming days, weeks, and months. This is not the time to cash out. It's the time to thoughtfully deploy excess cash (if you are sitting on it) from the sidelines. Stocks are the only thing that go on sale and instead of buying, most investors panic and run away from the opportunity presented.
The most recent (similar feeling) market correction we experienced was exactly 5 years ago, when the world shut down due to Covid-19. If you were invested, you may recall that in the middle of March 2020 the market dropped double digits in a single week. Fast forward just 9 months to year-end, the market was on a full-blown sugar high. Fund managers had little choice but to mechanically close out winning positions, which in-turn passed thru in the form of shocking capital gains on 1099’s to investors. People could not help but feel deep resentment that their accounts experienced a market adjustment (lost nearly 25% in value) due to a new Administration, a War in Europe, and most everyone was still living and working under restrictive conditions. Tax season in the spring of 2021 was the most emotionally intense that I can recall in my 20+ year career. Optimism was hard to locate.
For those of you who are invested in AMP models, I can assure you that our analysts have been preparing for this moment by insulating models with hedges to combat volatility and are actively taking advantage of lower priced stocks.
For those of you who are invested in annuities – moments like now are just one reason we own them. It helps us sleep well at night; and know that the living benefits secured in the contracts are going to keep the checks arriving month after month.
For those of you that retirement is still 5+ years out… just keep buying! Stocks are on sale right now. Your 401k contributions, stock option purchases, and brokerage contributions will reward you later.
The news is relentless about the 3 major indices. It is important to understand what each one is measuring. I can assure you if you are my client, you are not closely resembling any one index – but a combination of at least 3-5, including Russell and MSCI-EAFE.
The Dow Jones Industrial Average (DJIA) has been around since 1896. The DJIA tracks the stock performance of 30 large, publicly traded companies considered leaders in their industries, often referred to as "blue-chip" stocks. This index provides a snapshot of industrial and economic health through a small, curated group. Despite its limited scope (30 of thousands of U.S. companies), it’s a widely recognized barometer of market sentiment and economic trends.
The S&P 500 has been around since 1957. The S&P 500 tracks 500 of the largest U.S. companies by market capitalization, covering about 80% of the total U.S. stock market’s value. It’s a benchmark for the overall U.S. economy and stock market. Investors and funds use it to gauge large-cap performance and economic vitality, making it a key indicator for professionals and policymakers.
The Nasdaq Composite includes all domestic and international common stocks listed on the Nasdaq Stock Market—over 2,500 companies as of recent counts. The Nasdaq is a barometer for the tech sector and growth-oriented companies. It captures innovation-driven markets and is more volatile due to its focus on younger, high-growth firms compared to the more stable blue-chips in the DJIA or the broader S&P 500.
Just for fun, I invite you to see what the major indexes were valued at on the day you were born. You can locate this information in Google, Yahoo Finance, Grok, ChatGPT, and other sources. For some of you, the indexes we measure gains and losses on may not have been introduced yet! I was born on a Saturday, but the Friday before, the market closed as follows: DJIA: 945 S&P: 500: 99 Nasdaq: 99 The market is not closed yet for today – but the DJIA will likely end over 38,000, the S&P over 5,000 and the Nasdaq over 15,000.
The value of a troy ounce of gold on the day I was born was $150. Today it is $3,110.
I don’t have a crystal ball, I don’t know how long this cycle is going to last, but I am confident that we will survive this together. We are looking for every opportunity to help you come through this market cycle stronger. Please note the attachments in this newsletter. If you click on the Fidelity attachment below – a chart nicely outlines major global events that caused market adjustments, and yet the market still climbs. When those events were happening, pessimism was high. Additional attachments demonstrate how the market has historically performed through events that seemed at the time to be "end of the world."
Last year I had a nice review with a couple I have been working with for 20 years. They are in their 80’s. I asked them “what was the worst (scary) historic event you lived through?” They both thoughtfully replied almost in unison: “polio.”
Please do not hesitate to get on my calendar if a conversation will help alleviate any concerns or anxiety you might be having. We are very much in office, full time for calls, Zoom, and in-person meetings. www.calendly.com/mary-ggf