Quarterly Newsletter- 09/30/2022
I know, I know, I know. I cannot believe it either. Next month will be my 20 anniversary working in this business. Even though it was 20 years ago, I still vividly remember the events of the first month I started working. We had just celebrated the 1 year anniversary of September 11th and our economy was in the depths of a nasty recession as a result of the tech wreck. Our markets were spiraling down and our clients were calling my dad every 10 minutes looking for advice on what they should do with their portfolios. Relying on his many years of experience, he wisely counseled them to stay the course. He knew things were looking real bad and client accounts had declined significantly, but he also knew two very important things. With time, the market will eventually recover and ultimately exceed its prior highs and you only lose money if you sell your investments.
Today, we find ourselves in a similar situation. The S&P 500 had its worst 1st half in 40 years and the worst September since 2002*. You may or may not remember in my first quarter letter I said a storm was brewing and it’s time time “batten down the hatches”. Well folks, here we are, in the middle of the storm. I actually feel like we are in a tornado getting spun around with large down days followed by a few hopeful up days, then more down days. When will it all pass you may ask? Unfortunately not for awhile. As long as inflation is running hot and employment is strong, the Federal Reserve will continue to raise rates causing markets to be volatile. Think of interest rates as oil in an engine. The more oil in the engine, the smoother it runs. The less oil in the engine, the less smooth it runs. The Federal Reserve is purposefully trying to slow this hot inflation down, but lowering inflation is not quite that easy. Think about some of the goods and services you pay for. Food, car mechanics, pest control, pool service, delivery service, appliance repair, plumbers, electricians etc. Once prices rise for these goods and services, they typically don’t go down. This is called sticky inflation and is very hard to combat.
Let’s change gears back to the markets because I want break out my crystal ball and see if I can make a prediction as good as the last one I made back in January. In 2002 the Dow Jones Industrial made a four year low on September 24th. It continued to go down and made a five year low just a few weeks later on October 7th and temporarily bottomed on October 9th. We trudged along the bottom for awhile before hitting the ultimate bottom March of 2003**. In September 2008, when Congress initially failed to pass the bank bailout bill the Dow Jones dropped 777 points, the largest point drop at the time***. Just like in 2002, it trudged along the bottom before finally bottoming out March of 2009****.
So here is what I think might happen. If history repeats itself a third time, we should trudge around the bottom here for another 6 months or so before we bottom in March and then start another market uptrend. It’s hard to be positive in the current economic storm we find ourselves in, but you have to remember there is always a rainbow at the end of a storm. This too shall pass.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.