Skip to main content

Sound Advice: June 8, 2022

Rebound? 

So far this year, the market averages have headed lower, and by midyear it seems likely that 2022’s first half will have been among the worst starts since 1950.  The causes: high inflation and turmoil in Ukraine, abetted by stock valuations that last year had swelled toward the upper end of the historic range. 

Rich valuations alone do not turn markets upside down, but they do set the stage for retreats when there are problematic economic and/or geopolitical developments.  Nevertheless, most sectors of the economy are in relatively good shape and interest rates are still well below the levels that had prevailed for many years.  Where things stand now in Ukraine is another story, but the market appears to have absorbed the initial shock of what is happening there.

Over the last 72 years, there have been eight times when the S&P Index dropped more than 10% during the first six months of the year.  The biggest drops took place in 1962 and 1970, when the index fell 23.5% and 21.0%, respectively.  Since then, the pullbacks, including this year’s, have not exceeded the mid-teens.

What followed those weak periods is more important.  In 1962, 1970, and 1982, the index had recovered by an average of 22.4% by the end of those years, but in 1973, 1974, 2002, and 2008, the averages continued to fall after midyear. 

The OPEC oil embargo was a key source of the weakness in 1973 and 1974.  In 2002, the markets were still under pressure from the remnants of the dot.com fiasco.  The culprit in 2008 was the financial crisis. 

With that brief refresher of history, it’s tempting to think that a resumption of market strength is just around the corner, but sometimes the recovery takes longer.  Still, even when the pickup from the lows of those years had been delayed, it most assuredly did take place.

In the wake of those difficult times, the follow-up resurgences happened in 1975, 2003, and 2008, three years when the average gain was 29.0%. Given the magnitude of those gains, patience was certainly well rewarded.

It seems likely that the recent turbulence will continue, albeit at a more moderate level.  The root cause of market volatility is uncertainty.  Uncertainty about interest rates, for example, is concerning, but the knowledge of how the Fed plans to make the adjustments needed is part of the process of rebuilding market confidence.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

 203-222-9370

 www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more