Market Volatility & Our Emotions
As long term investors we are in the middle of another expected, albeit uncomfortable market correction. Today, I wanted to send a note of encouragement and perspective in these challenging times.
There’s no question that we have been dealing with mass uncertainty since COVID in 2020. Fast forward two years later, we are dealing with inflation, rising interest rates, a war in Ukraine and talks of a recession.
We feel pain at the gas pump, anxiety in seeing our portfolio values decline, and extreme headlines from 24 hour news cycles. It can really get our minds spinning and lead us to say the 4 most dangerous words in investing:
“This Time It’s Different.”
Today I want to talk about our emotions around our finances, as measured by the Consumer Sentiment Index. The ICS, as provided by the University of Michigan, tracks consumer sentiment in the US, based on surveys of random samples of US households by looking at personal finances, business conditions, among other topics.
If you’re like many of us these days and feeling a healthy dose of negative sentiment, this might be a great time to reflect on other periods of uncertainty as we look towards the future.
In March of 2022 we hit a low (59.4) that we haven’t seen since we were in the middle of the 08-09 financial crisis. We have experienced 8 times that sentiment hit a bottom – often times during or very near a recession and market bottom.
While past performance cannot predict future results, it can be reassuring to know what has happened the 12 months following these lows.
- The average stock market return, as measured by the S & P 500 excluding dividends was 24.8%
- In 100% of those 12 month periods, the return was positive and it was as high as up 43.6% from when consumer pessimism reached its peak.
In summary, when things feel like they’re at their worst – there are typically brighter days ahead.
Investing in equities means that we are buying the future cash flows of real businesses that are have strong balance sheets and are some of the most innovative companies in the US and around the world.
The trade off for owning these great companies and their potential profits is that during times of uncertainty – their prices can temporarily decline 10, 20, even 30+ percent. Those that are patient through these downturns, have historically been rewarded with the long term upward trend of the market.
It’s my hope that you avoid being filled with fear and doubt and embrace the 4 most important words to help get us through a market decline:
“This Too Shall Pass.”
If you’d like to talk about how your portfolio aligns with your long term goals, our team is here and would love to talk through anything and everything that might be on your mind. Until then, think long term and have a well thought out plan and process (free of emotion) during these volatile times.
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Investment advice offered through HighPoint Advisor Group, a registered investment advisor. HighPoint Advisor Group and Kennedy Financial Group are separate entities from LPL Financial.
The content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal This information is not intended to be a substitute for specific individualized investment or tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.