Tech deepens its correction while oil & gas is doing just fine: Market Analysis



To the delight of every investor in the last decade, tech stocks were the golden goose of every winning portfolio, returning over 600% (QQQ index). This abruptly changed this year with the inevitable and eventual rise in US interest rates. Investors who didn’t diversify adequately felt the brunt of the tech correction this year, with some investors down 50%+ so far this year, and with new signs of a slowdown in the tech space, the decline might steepen even further.


Most other asset classes have met a similar, but not as bad fate this year, with financials down 14%, gold down 13%, international large stocks down 25%, Intermediate-term, high-grade corporate bonds down 19%, US real estate index down 29%. Energy was the only positive major index, returning over 60% this year. Ethical considerations aside, investors flocked to an asset class propped up by war. With ethical considerations, however, what are some ways investors can protect themselves, and even make money in this market?


First, the market is reacting to what they think will happen with interest rates far into the future. Only until we see a slow-down in inflation and a reluctance from the Federal Reserve to increase rates further, the market will then reconsider its bearishness and may even return to prior year levels, depending on other factors. Waiting is the best course of action an investor can take.


Having said that, for investors interested in committing new money to the market but don’t want to jump into the deep end with tech, there are some other asset classes worth considering.


  • Cash: With interest rates higher, savings accounts are paying much more. Betterment has a cash reserve account currently yielding 2.75%.

  • Bonds: Although bonds have taken a big market price hit this year, they now pay a higher interest rate. SPDR High-Yield Bond “JNK” has an SEC yield of 8.58% and iShares California Muni “CMF” is now at 3.4% (tax-equivalent yield 6.94%).^1

  • Value-oriented large US stocks: The Vanguard Value ETF “VTV” is down about 7% this year which is considered a success considering the company it keeps. Much of it is in financials and energy; value stocks have historically been winners in bear markets.


Lastly, it’s important to follow your financial plan, which takes into account market corrections as this one isn’t the first or last. Cash invested should have a hold period long enough to withstand a market correction cycle, an average of 2 years. People should never invest cash they can’t afford to lose.


Lifestyle is worth taking into account during this time. The job market remains hot. If you need more money, consider finding a better-paying job. If you’re in the market for a new car, consider an electric vehicle, as the Biden administration has continued to provide related tax benefits. Solar panels and having your own garden are a couple of other ways to help get off the grid, which will continue to get more expensive as inflation increases.


At Eureka Wealth Management, I help clients make sound financial decisions during market corrections. I also do retirement planning, and tax/estate strategies. Consult for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.



All index funds' year-to-date performance; bright red is -30%. Much of the green is either energy stocks or inverse funds.

https://finviz.com/published_map.ashx?t=etf&st=ytd&f=110422&i=etf_ytd_142364720


Sources:

^1

https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-bloomberg-high-yield-bond-etf-jnk

https://www.ishares.com/us/products/239731/ishares-california-amtfree-muni-bond-etf