Last month we were capping off one of the worst starts in stock market history. In the first six months, the S&P500 was down over 20% while the Nasdaq was down almost 30%. Within a blink of an eye, since the end of June, the Nasdaq bounced15% while the S&P jumped nearly 10%. So why the change in character? Recent data points to the possibility of a peak in Inflation which has resulted in the Federal Reserve changing their position on the future of interest rates. Companies have come out with earnings for the second quarter that show strong consumer demand and continued growth, despite increases in costs and labor shortages and just as Quint discussed here, investors seem to be waking up to the fact that many great companies have simply become too cheap.
Being relatively new to this business, I have found it fascinating how quickly investor attitude can change. It is like when I would tutor Math at UK. I would have a student who failed two exams at the start of the year. That student would then come in for tutoring knowing full well they may flunk out of the class, we would spend hours working through practice problems, going over lectures, and preparing for the next test, often they improved with a B on the third test. Inevitably every semester though, I would have that student then never come back to study for the final because now they were “good to go” and had it figured out. I would then see that student retaking the course the next semester. The point is just because they improved on their test after a lot of hard work does not mean they are now a straight A student. Thirty-five days ago, the markets got their second test score back and people were losing their minds saying that this would be a recession far worse than 2008’-2009’, that gas prices were going to $10 per gallon, and that stock market was going to zero. Now we have seen a 10% bounce and I hear those same people talking about “routine market corrections” and how quickly we will return to all-time highs. It is clear to me that long term investing success lies somewhere in between.
It seems to be that headlines are trying to paint the outlook as overly pessimistic or wildly bullish. Yet, why can’t it be somewhere in the middle? Rather than a high-tide rising all boats, why can’t certain parts of the economy succeed while others struggle. Doesn’t it make sense for travel and tourism to thrive after folks have been locked down for years while housing takes a breather due to a rapid rise in interest rates? Won’t technology companies like UBER, LYFT and AirBnB see robust revenue while companies such as Target and Walmart struggle with higher than anticipated wage costs and excess inventory? From our vantage point, it certainly seems like the environment we’re in may be one that requires a bit of skill to navigate rather than what we’ve seen over the last few years where you can throw a dart and ride a winning investment.
The common theme however is unemotional consistent investing over a long period of time wins the race. Even in my short time I’ve seen first-hand how folks jumping in and out, making emotional decisions can derail long term success in a nanosecond.
Individuals, clients or otherwise, that have remained unemotional down during these last few months and gone through the planning process seem to have the peace of mind to successfully navigate through this difficult market environment. I also applaud those that have realized it is never too late or too early to begin financial planning. I have worked with individuals in their late 20s, those in their 80s and everyone in between to build out plans, adjust allocations, and prioritize goals. I truly believe the best thing you can do to not get caught up in the world ending headlines one week and red hot bull riding the next is intensive goal based planning. If you don’t have this in place, may I ask what are you waiting for?
Until next time
At the time of this writing certain Joule strategies were long ABNB, UBER, LYFT