The last 4 months or so have been really tough on growth portfolios and now we’re seeing some weakness in the value stocks too.
This is a time when you really have to look at the stocks, bonds, funds, etc. in your portfolio and decide whether they are the ones with which you want to go to war.
In the months from mid-November 2021 to about mid-March, smaller companies’ stock prices came down precipitously. The larger companies were hanging in there, so the indices (i.e. the S&P 500, the Dow Jones Industrial Average and even the Nasdaq) didn’t look too bad.
In the last month or so, and especially the last couple of weeks, the weakness has started to hit the big stocks. Because the bigger stocks make up such a large portion of the major indices, we are seeing large point drops in those indices.
Since bonds have also gone down in price as interest rates have gone up, there really has been almost nowhere to hide.
Of course, this is the time in a market cycle that all of us get a little worried. After all no one wants to see their portfolio drop in value. However, it is not a time to panic.
Are there reasons to be nervous? Yes. Inflation is running at a very high rate, interest rates are quickly moving up, there is a war going on between Russia and Ukraine, and China is totally locking down its cities.
Every bear market has lots of reasons to be worried. This time is not different.
A Little History of Bear Markets
First, we need to realize that down markets are a normal part of investing. It is the price we pay in the short term for (hopefully) gains in the long term. In the short term there are myriad reasons why stocks go down. In the long term, the only thing that really matters is earnings.
In general, markets grow until they get too expensive. Then they pull back until they get too cheap. In a capitalist system, that’s the way it has always been and that’s the way it will always be. It’s basic supply and demand.
It is not at all unusual that we see drops greater than 20 percent. That is the definition of a bear market (down 20% from peak to trough).
There have been 26 bear markets since 1928 according to the Hartford Funds article. It goes on to state that on average, stocks lose around 36% in a bear market.
Here are two statements we think are very important in this article: In the last 20 years, half of the S&P 500 Index’s strongest days have come during a bear market and 34% of the market’s best days have come in the first two months of a bull market, before it was clear that a bull market had begun.
The article states “…the best way to weather a downturn could be to stay invested since it’s difficult to time the market’s recovery.” That is a sentiment with which we wholeheartedly agree.
According to the Hartford article, there have been 26 bear markets (down markets) since 1928, but there have also been 27 bull markets (up markets) since 1928. In other words, every bear market has been followed by a bull market. And eventually the bull markets usually lead to new highs. There is no guarantee that this will happen again, as past performance is not a guarantee of future results, but as I have said on many occasions, I like those odds.
What To Do
First, here’s what NOT to do. Do not panic.
Here’s a quote from The Balance article noted above, “For investors who sold at the bottom of these markets, the lower stock prices had a detrimental effect. Those who stayed in long enough to experience a subsequent recovery were better off. Remaining focused on the long-term is important in the middle of a bear market.”
Second: If you are living off of the investments, try to make sure you have enough cash on hand to get through the downturn. That amount will be different for each investor.
Third: Bear markets create opportunities.
I like to say that we are in the only business that I am aware of that when everything goes on sale, everyone walks out of the store!!
A bear market gives investors a great opportunity to buy stocks at much lower valuations. The market we are in right now has taken many growth stocks down by a significant amount. If you deem that the baby got thrown out with the bathwater, and if you have cash, then this is an excellent time to consider buying those stocks where the company is still good, but the price has been discounted.
If you don’t have extra cash, it is still a good time to look at your portfolio and determine if the securities you own still make sense in the portfolio. If not, then cut back on those or sell them off and look to upgrade your portfolio.
For most of our clients, that is what we do for you.
Fourth: If you are contributing regularly to a 401-k or some other retirement plan, make sure you keep investing when the market is down. You might even consider upping the amount you invest every pay period if you can. You want to buy more shares at lower prices.
Lastly: This is the time to really see what your tolerance for volatility is all about. When the market is going up and your account is doing great, it’s easy to say that you can handle a bear market. But when the market is actually down by 20% or 30% or more, and your accounts have been hit, then you need to honestly evaluate your psyche. If you find that you are not sleeping at night or you just can’t handle it, then it is a good time to talk to us about possibly making some changes to your asset allocation.
Bottom line is don’t let your emotions get the best of you. Try to take advantage of lower prices. Most of all, be patient. Maybe this time it will be different, but history says that eventually down markets turn into up markets and you want to be in the game when it happens.
We know many of you are concerned, so please contact us to talk about what is going on in the markets.
WWM Financial is an SEC Registered Investment Advisor
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
In this video Steve provides a recap of the stock market in April. He discusses investor sentiment, the S&P index PE ratio, and a new economic indicator.
We’re sure you know the stock market has been getting pummeled these last few weeks. If you are concerned whether your financial plan is still on the right track and are worried about taking more risk than necessary, schedule a free 30-minute consultation by clicking on the button below.
WWM Financial is an SEC Registered Investment Advisor
The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
In this episode, Gita Nassiri, CPA, JD, MBT and Catherine Magaña, CFP® discuss Estate Planning for 2022 and some changes that have occurred.
So if you want to prepare your estate for your heirs, understand the new gifting and estate tax exclusions, and ensure your estate does not go into probate so you can have peace of mind, tune in now!
In this episode, you’ll discover:
Estate Planning Tips For 2022
Gift and Estate Federal Tax Exemption Updates
Annual Gift Tax Exclusions
Step Up in Basis for Assets
Importance of Titling
Beneficiary Designations
A Misconception of Estate Planning
What Can Occur If There Is Not a Will in Place
Proposition 19
About Gita Nassiri
Gita Nassiri, CPA, JD, MBT is an expert in Estate Planning whose accomplishments include:
Practicing since 1994
Graduated with her law degree from Whittier College
Master’s degree in business taxation with honors from USC
Active member in California Bar Association Trusts and Estates Section.
Fluent in French and Spanish
Thanks for listening!
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Wondering why the market rallied so much in March of 2022, how rising interested rates has historically affected the stock market, and which kind of investments have provided the greatest returns? Tune in for this month’s Stock Market Update with Steve Wolff as he answers these burning questions.
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WWM Financial is an SEC- Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where WWM Financial and its representatives are properly licensed or exempt from licensure. Investing involves risk and possible loss of principal capital. No advice may be rendered by WWM Financial unless a client service agreement is in place.
Full Transcription Below:
Steve Wolff:
This is Steve Wolff with the Monthly Market Report for March of 2022. Talk about March Madness. This is one of the weirdest months that I’ve seen in a long time. In the middle of March, things turned around for this market. Matter of fact, this market to me was bananas. Just bananas.
Steve Wolff:
What happened is, in the beginning of the month, the markets were going down and they were going down precipitously, as they had been doing for the first part of the year, especially the small stocks, especially the growth stocks.
Steve Wolff:
Well, March 15th came and the Ides of March I guess that must have done it for those of you who are Shakespeare aficionados, you’ll know what I’m talking about. For others of you, it was the middle of March, and the stocks wow they turned around. So before I get to all the things that happened in there, I want to give a little disclaimer here which we have to do for every one of these videos that we do.
Steve Wolff:
What I am about to say is strictly for informational purposes and it’s not meant to be recommendation. So before you buy or sell anything relating to anything I am saying about the markets or individual securities or maybe even the game that is going to be on tonight, be sure to consult your financial advisor. It’s probably best for your personal situation and you can make…he can make a recommendation or she can make a recommendation for you.
Steve Wolff:
By the way, there is a game tonight by the time you see this, this game will be over. But it’s March madness Kansas is playing against North Carolina and it is going to be a barn burner. In the meantime, what happened in March? For the month of March the S&P was up about 3.6%, the DOW was up about 2.2% and the NASDAQ was up about 3%.
Steve Wolff:
But for the quarter so January, February, March the S&P was down about 4.9%, the DOW was down about 4.6% and the NASDAQ was down about 9%. Now that only tells part of the story, because the small stocks and the growth stocks but especially the small stocks were down by a lot more. In the first quarter the Russel Growth 1000 which is a thousand stocks that were growth oriented were down about 9%. And the 2000, the Russel Growth 2000 stock index was down about 13%.
Steve Wolff:
Now the Microcap stocks based on the Russel Microcap Index was down about 15% for the quarter but both the Russel 2000 and the Microcap Russel Index were up about 1% for the month of March. So putting it, there’s a lot of statistics that I’m giving you. Putting it another way things were really coming down and then there was a rebound. Starting the middle of March a lot of these stocks came back.
Steve Wolff:
Here is something that, that’s an interesting statistic. At the lows the NASDAQ, the Russel 2000 which is small caps and the Microcaps were down a lot, and this is from their 52 week highs. The NASDAQ from its 52 week high which was around the middle of November and peaked out or you know valleyed out, whatever you want to call it, at 20% down in March. The Russel 2000 was down by about 23% and the small cap microcap index, Russel Index was down 25% from its high to its low. So they did make a nice rebound at the end of March.
Steve Wolff:
Fortunately that happened so the quarter itself really wasn’t as bad as it could have been. Dividend stocks were a great place to be and have been a great place to be and I think the fact that the dividends keep coming in they keep- A lot of companies keep raising their dividends has been a terrific thing to happen. In the meantime, Ukraine keeps going on as far as the war with Russia, there’s a lot of stuff going on there. Russia we thought, a lot of people thought would win that war in days we are now up to something like 40 or 45 days now since this started. And Russia is now pulling back a little bit. I think, from what I’m hearing, they may be regrouping who knows what’s going to happen again.
Steve Wolff:
Between that and inflation, the oil price has been up. It’s been a tough place for the individual small investor. Matter of fact I think the small guys are getting hurt a lot because I just filled up my car with gas and around here, even at Costco, the gas was about five dollars and 50 cents a gallon. So, that is hurting people. Also the FED in March started raising interest rates. How much that’s going to go from here I don’t know, how many times they are going to raise it I don’t know. But I would think it’s going to be a few times.
Steve Wolff:
Well between raising of interest rates and higher inflation, higher oil prices the little guy is really getting squeezed. The interesting thing that’s happening right now is the interest rate curve is starting to invert. In other words a normal curve is when rates are set the near-term rates are usually lower than the long-term rates because there’s more risk in the long term rates.
Steve Wolff:
But right now it looks like it’s starting to go another way. The two year bond is now actually higher than the ten year. So as far as interest rates are concerned that’s concerning for a lot of people, because when a curve gets inverted,a lot of times that means that there’s going to be a recession at some point in the future. Now it’s not a guarantee but it does happen. And it happens more often than not.
Steve Wolff:
Now what does that mean as far as the stock market is concerned? The interesting part about that, from an article that I just read, from the time that the yield curve actually inverts and we are still not quite there because the really short term treasuries are still lower than the long. So the curve is going in your direction this way, instead of this way. So, when it starts going the other way that’s when we are going to worry about it. The interesting thing about stocks is that it takes about seven months to maybe up to three years, from what I’ve just read, before we actually go into a recession.
Steve Wolff:
In the meantime, stocks have actually done well, historically, during the time from the time that rates invert to the time that the recession actually happens. My opinion is that a lot of the stocks, especially the growth and small stocks have already put in a pretty good sized loss and maybe the bottom, I think it could be the bottom where we hit in the middle of March. Doesn’t mean that stocks can’t pull back gain. But that was pretty significant for many, many stocks.
Steve Wolff:
The value stocks help up better, the dividend stocks held up better so we will see what happens. In the meantime whether we going to be in a bull or bear market obviously we’ve had a bear market in parts of the market, meaning bear market meaning things are down. The bull, from last time you saw me was down like this and he’s kind of sitting up again, who knows maybe we’ll get back to bull market who knows.
Steve Wolff:
I do have a fortune telling little crystal ball here that my wife gave me many years ago and it’s got a bull and a bear here. If I could look into it and really see what the future is going to be I could tell you, but it’s still kind of cloudy. But it does say something about Auntie Almond here and Dorothy and Kansas who is playing tonight in case I didn’t tell you that. You already know who won, but I’m rooting for Kansas so we will see what happens. In the meantime we’ll see what happens in April, I have no Idea what will happen in this month hopefully it will be a good month.
Steve Wolff:
By the way April is the best month of the entire year for stocks, historically. Now whether that happens this year or not, who knows. But April has always been a good month. Unless, you are paying a lot of taxes, which a lot of us are. In the meantime, I will see you next month where we will recap March. Now until then, happy investing.
The WWM Financial advisors, Certified Financial PlannersTM and portfolio managers gather to discuss their take on current market conditions as of March 9, 2022. How can market volatility affect your investment portfolio? Once you consider the war, supply chain issues and rising inflation there can be a large shift in focus. They further discuss economic indicators and technical indicators.
We realize there may be more questions than answers right now regarding your personal investments and how exposed you are to the market. For peace of mind, to confirm you are on the right track to financial freedom, schedule a consultation below.
FREE Report: 5 Investing Secrets Every Investor Needs to Know
Avoid making bad investment decisions. This little-known report reveals 5 better ways to invest in stocks.
Do you have stock options that have grown to be a large position of your portfolio? Are you consolidated in a few investments?
In this episode of Steve’s Stock Stories, Steve Wolff and Greg Carroll, CFP® discuss a couple examples of concentration risk and some misconceptions about this type of risk. Within 15 minutes, learn about what concentration risk is, how it can occur, and how diversification may minimize some of this risk.
FREE Report: 5 Investing Secrets Every Investor Needs to Know
WWM Financial is an SEC- Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where WWM Financial and its representatives are properly licensed or exempt from licensure. Investing involves risk and possible loss of principal capital. No advice may be rendered by WWM Financial unless a client service agreement is in place.
