Welcome to our first blog! We will periodically post our thoughts about the markets, portfolios, wealth planning issues and timely topics that impact your long-term outcomes.
Mid-Year Market Review
Currently, the tepid performance of the stock market, and what comes next, is on the minds of most Americans. In the short-term, we do not have a clear path to when the market will truly be on the road to recovery. However, in the long-term, we know that owning shares in some of the best-run companies in the world is a winning strategy. Note that I said “some” of the best companies in the world not ALL of the companies in the world. This is important as I point out in my recently published book “Achieving Financial Freedom, A Road Map for All Investors.” If you would like a complimentary copy, please reach out to us.
It seems like there's always something to worry about. Markets like predictability and we have not had that in recent years due to the pandemic and government response, including the virtual shut down of most our economy, printing trillions of dollars and pumping that into the economy, and now trying to unwind some of the financial imbalances in our economy there are some currents that we haven't experienced prior to this time.
I spend a lot of time reading and thinking about the current state of our economic world. I refer to other periods in history like the 1960s and early 70s. I came into the business in the late 70s at a time when inflation was rampant. In 1981, Federal Reserve Chairman, Paul Volcker, raised interest rates for a short period of time to 20% to squeeze inflation out of the system. It worked and a short recession followed. It worked so well that it was the beginning of a 30-year bull market in bonds that lasted until 2008 when the Federal Reserve moved short term interest rates to virtually 0%. That was the end of the 30-year bull market for bonds.
The stock market also suffered significant drawdowns which lasted for about 18 months. On March 9th, 2009, a change in how banks value their bond portfolios triggered the start of the next bull market in stocks which lasted until early 2022.
As we enter June 2023, the conditions are somewhat different than the early 1980’s. Employment is extremely strong, banking regulation has increased due to the failure of a couple regional banks, and a surprising number of companies are doing very well considering the headwinds from government regulators and the results of higher interest rates which has affected asset values. Over the next few months, it will become apparent that inflation has dropped significantly from its high point of last year and the financial markets will react accordingly. The average length of a recession an equity market drawdown is 18 months. June 2023 marks 18 months since the beginning of the current market cycle. Maybe it'll take a little bit longer, but clearly the signs are all there that the recession has started, and hopefully be well past the midpoint.
These are short-term issues and part of the natural evolution and cycles of financial markets. Most of you reading this understand because you've been through this several times :). As financial advisors we take a very long-term view and know that these periods of time will soon pass, and our economy will continue to grow and thrive, and our portfolios will do likewise.
About the Photo
I took this photo in Longyearbyen, Svalbard. It is the northern most town (defined by a population or 1,000 or more) on the planet with a population of about 2300 humans and 3,000 polar bears. Everybody has a rifle J. It is a fascinating place in the Arctic and home to the Global Seed Vault where countries store seeds from their countries if they need to replenish the supply of seeds for plants in their region. Currently there are 1,214,827 seed samples from most countries in the world and capacity for millions more. Interestingly, most countries have domestic seed banks also. Fort Collins, CO. has the largest USA seed bank.