I’ve been in this game a while now. That said, 23 years has gone by in an instant and it’s always surreal to think back to some of the more trying times.
I began as a stockbroker shortly after the peak of the markets in 2000. Each and every day stocks were in free fall as the late 90’s speculation came to a screeching halt due in part to the Federal Reserve’s interest rate policy, hiking rates to slow down speculation. Day after day I would cold call individuals and talk to them about markets and investments, most of the time being met with a dial tone after they abruptly hung up. Who could blame them? In addition to the annoyance of a disturbing phone call, who wanted to talk about stocks when markets were falling daily? No one.
Just when you thought it was bad, we experienced 9/11. I was in the early stages of building my own office in Lexington when these attacks not only shook our country but closed financial markets for 5 days with absolutely no idea what would happen when they reopened. The small book of business I had was scared, I was scared, and most Americans thought we were going to war, on our soil. Gas lines and grocery food shortages were a common occurrence.
By March of 2003, stocks had fallen 50% from the year 2000 highs and not a single person I spoke with wanted anything to do with finance, much less the stock market. In the height of desperation and despondence, stocks began to rise. For the next 4 years, the S&P 500 bounced over 100% to return to 2000 levels. While the 100% move was impressive, it marked over 7 years of no progress for those who sat and waited.
The bull market from the depths of 2003 was fueled by lower interest rates and an idea that all Americans should own a home. It wasn’t surprising to me that this fantasy led to excessive speculation and ushered in the next financial crisis of 2007 and 2008 which was led by the greatest housing crisis our country had seen since the great depression. From its peak in 2007 through the bottom in 2009, the S&P once again fell over 50% adding more insult to injury as now it would be more than 13 years whereby holders of stocks experienced zero return.
These events would become my teaching ground for understanding bull and bear markets especially when it came to investor mood and sentiment. What stood out to me the most during that time was when the general mood was extremely pessimistic or extremely optimistic a sea change was always upon us.
For me, this idea was first put to the test during the 2016 presidential election when the pessimism became as intense as I remember. The media seemed to feed into this concern with headlines regarding a market crash if Trump were to win and the same headline should Hillary win. Regardless of the election outcome most folks were convinced that markets would bear the brunt of the results and a decline was inevitable. From the end of 2016, through the top in February of 2020, the S&P advanced well over 50%.
Covid was the first instance since the financial crisis and 9/11 when darkness prevailed to the point of extreme uncertainty. I spent most of my days conversing with many of you about the possibilities for the markets and just what would happen if all commerce ceased to exist. Thankfully, I had vivid memories of 9/11, which seemed to be wrought with similar uncertainties so rather than predict the future, our response and course of action was to let the emotions subside, not react in haste but rather take an even keel approach and see how things developed. The S&P was up over 15% by the time 2020 was finished.
As we roll into the end of 2023, I think it’s safe to say the world is in disarray. Whether it’s war, interest rates, inflation or Congress, the uncertainty abounds. It would be easy to say it is worse than ever before however I’d find it hard to put today’s uncertainty against the depths of Covid, the great financial crisis, 9/11 or the Tech bubble. Yet, the mood among investors is as negative as I can ever recall. Rather than any hint of optimism, in my opinion, most are convinced that further erosion is inevitable.
From my vantage point I certainly understand and respect today’s challenges. That said, I’m well aware that businesses in America will continue to move forward regardless. We will pay our cell phone bills, fill up our cars with gasoline, surf the internet and watch our favorite teams on game day. We will shop at Kroger, Walmart, Publix or Costco and maybe if we’re lucky hop on a flight to someplace warm this winter. Jobs will continue to remain plentiful and despite the headwinds, capitalism in America will prevail.
When I’m asked about markets and how I can remain optimistic my answer is two-fold. On one hand, I think we have the strongest seasonality coming our way as we head into an election year with a president seeking a second term. In fact, there is an interesting study that was conducted about this very time we’re in right now. When you have a moment, peruse the data HERE:
In addition to this Presidential cycle seasonality, in my opinion markets have been controlled by and will continue to be controlled by interest rates. The Federal Reserve has now undergone the fastest rate hiking cycle in our history and seems to be experimenting with just how far they can go without breaking something and causing significant damage. In my opinion, the challenge with this experiment is it comes with a great cost to our federal budget and the interest expense which is now double where it was a year ago and quickly approaching 10% of our annual government spending. In short, this monetary policy experiment has quickly become a national fiscal concern and one that I don’t believe plays too well as we bump up against our debt limit in November.
From my vantage point all the unknowns are in play and is precisely why it makes sense for negativity to be at a peak level. What is not known however is how it really will play out. While I can easily mention the 5 primary concerns our country and markets face at this moment: War in Ukraine, War in Israel, Interest Rates, Debt Levels & Congress what is just as important is exploring what can go right in the coming weeks / months that may shift the tide considerably.
In my opinion, not many are even considering the possibility of: A speaker being nominated and approved*, a budget being agreed upon, resolution among Ukraine and Russia, resolution within Israel, Interest Rates no longer being raised, inflation coming down, corporate earnings continuing to remain strong, new election hopefuls and on and on and on. (From the time this piece was written and approved by compliance, a House speaker was approved – Step 1)
While so many are convinced that lower prices are upon us, I once again find myself in a different camp looking towards year-end and especially 2024. Like many times in the past, markets have now been flat to down for the better part of 2 years and I’m beginning to see a common theme of discouragement and hopelessness showing up. In my experience this is the precise time that environments begin to change so this is precisely what I’m looking for.
As we head full-steam into the final two months of the year, be careful not to become too negative or allow the headlines to dictate your emotional state of mind. My cues for a turn will be interest rates, which I watch closely each and every day. The interest rate market has been controlling stocks and I don’t see that changing any time soon. As inflation comes down and interest rate concerns subside, I suspect stocks will once again pick up steam with better times ahead.
Until next time
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