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Market Cycles…so where are we now?

Market Cycles…so where are we now?

August 07, 2023

What are your thoughts?  About the economy?  Employment / unemployment rates?  Inflation?  What the Federal Reserve is doing?  Are you feeling good?  Bad?  Uneasy?  What is the future for company profits?  The stock market?  Interest rates?

 

All of this is reflected in the phrase “consumer confidence.”  Before I say more, the old joke comes to mind: “If my neighbor loses his job, it is a recession.  If I lose my job, it is a depression.”  Your sentiment or personal consumer confidence is based on two factors:  your actual experience in the moment (job vs no job) and your perception of the events going on in the larger world.

                                                                                

To make all of this even more confusing, there are times when “good news” is really “bad news.”  And then even weirder, the opposite is true when bad news is good news. 

 

Do you recall the events of 1) 2000 to October 2002?  2) 2008 and early 2009?  3) What about August 2013?  4) March 2020?  5) Or October 2022?

 

What were you doing at those times?  What was your world like then?  Was it good?  Bad?  Great?  Awful? 

 

I can tell you in great detail what was going on in my world at those times.  Why?  Because my life revolves around events like these.  However, many of you may not have the same vivid memories that occupy my brain.  The actions or inactions taken by all of us during these times of stress have had a dramatic impact on our financial lives.  These five events or time frames were when “over-all-public sentiment was down and headed lower...the world was ending….and all of our investment statements were down a lot.  What did you do?

 

What was your “personal confidence?”  These events included, in order:  1) 2000 -2002 dot-com bubble bursting, 9/11 terrorist attack, and collapse of Enron;  2) 2008 – early  2009 financial crisis, a record number of foreclosures, failure of some financial firms and government bailouts;  3)August 2013 was the shutdown of the US Federal Government and down grading of US Government debt;  4) 2020 Covid recession, lockdowns, masks, schools and businesses closed;  5) 2022 was 9% inflation, FED increased rate 5% in less than a year and a recession seems likely.

 

Where was your head at during these events?  More importantly what did you do?  Or equally more important, what did you not do?

 

John Templeton, (create link to https://en.wikipedia.org/wiki/John_Templeton) is quoted as saying that “Bull Markets” (prolonged periods of investments going up in value) “are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria.”

 

Let’s unwrap the events of 2022.  At the beginning of the year, consumers were “revenge spending, traveling, etc,” supply chain issues of the Covid recession of 2020 had yet to be resolved, employers could not hire enough workers, and the result was higher prices and wages and the resulting US inflation hit 9%.  Europe’s inflation approached double digits.  China was still attempting to deal with Covid with prolonged lockdowns.  The US Federal Reserve increased interest rate to over 5%.  A war was raging in Europe.  The prospect of a cold winter threatened to drive energy prices higher.

 

Now to the important stuff, the value of your investments on that September 30, 2022 statement.  Your actual numbers will be different…but the widely followed S&P 500 index was down 25% YTD. 

 

Now I need to ask the same question asked in a previous paragraph:  “Where was your head in the Fall of 2022?  More importantly what did you do?  Or equally more important, what did you not do?”

 

Did you buy more stocks?  (I hope so)  Sell stocks? (hope not)  Or did you keep the stocks you already had?  ( that is ok…at least you didn’t sell…but too bad you didn’t buy).

 

Managing your financial future on “gut feeling” or concerns about current events is generally not thought to be beneficial.  I can give you lots of numbers, stats, dates, etc. but most people get bored with a bunch of numbers.  If you want the numbers, call us and we can go over all the charts.

 

The best advice I can offer is to first manage your cash.  When will you need money to spend and how much?  Set aside enough funds to cover that spending need for two to three years at a minimum or even longer if it will make you feel more secure.  The rest of your money is invested to provide for spending during future time slots:  four to seven years in the future; eight to fifteen years; or longer.

 

How much money goes into each of these “time slots” depends upon your age, current spending levels, priorities, wants, wishes and how long you end up living and how expensive your care becomes at the end of life.  If you think about it, some of this is within your control (like how much you spend) and other portions are not only out of your control but are “unknow-able.”

Each of the five different time frames outlined earlier provided “buying opportunities.”  I know many of you become weary of my optimism in the face of bad news and down markets.  But the facts are there if you care to look.  In my opinion, optimism is the only realism. 

I would suggest listening to “Market Place” with Kai Rysdall and also “Make Me Smart. ”Both can be heard live on NPR, or replays on the NPR website or the podcasts . I find that both give insight without the hype https://www.marketplace.org/shows/marketplace/

Wollman Wealth Designs, Inc is a financial planning and investment advisory firm in Escondido, CA partnering with families, friends and clients in San Diego County and around the country. Please visit our website, call the office or send us an email with your comments or questions.


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