The market’s bad weather and why waiting brings success
Every asset class has felt the pressure from higher interest rates and the ascent of two wars. Most notably, the fact that every asset class has gone down together demonstrates that the market hasn’t decided where money should flow next. Every asset class can’t correlate down forever. Money has to go somewhere. This is the primary notion that once evidence of targeted money flow rears its head, that’ll be the sign of a new growth cycle.
The S&P 500 is still up about 7% for the year and the “QQQ” tech index is up about 29% but down 10% from its July 17 high. But, if you were diversified with bonds, then you probably didn’t share in these returns. The iShares 20+ year Treasury bond ETF “TLT” is down 21% year-to-date, iShares Aggregate bond “AGG” is down 7%, and the iShares California Muni “CMF” is down 5%. Much of these counter-weighting forces negated returns for investors for the year, but, there’s still good news. Gold, “IAU”, is up 7% for the year and oil “DBO” is up 13%.
The US economy is super strong. This is good news for companies, the labor force, and investments’ fundamentals but bad news for future Fed action. The Fed is attempting to slow inflation by slowing growth, and they haven’t had much luck. The Fed may continue to raise rates beyond the current 5%. Doing so will stop much of US lending, including the issuance of new mortgages, currently floating around 8%.
Technically, there are reasons to be optimistic. The SP500 is reaching a significant multi-year support base that has trended higher since the 2008/2009 Great Financial Crisis recovery.^1 Commodities, gold, and oil are poised to go higher as energy supply may be further restricted due to deteriorating factors related to war. The World Bank warned of price doubling if the middle-east war expands.^2 Bonds have worse news. Although there’s a large consensus that bonds have been oversold and there’s much room for recovery, technically this asset class remains bearish. Investors can collect a higher interest payment, however, and the 10-year treasury is paying 5%, SPDR High Yield Bond “JNK” is paying almost 7%, and the California tax-free muni is paying 2.35%. For long-term investors, they may see their recovery in the form of bond payments.
Navigating volatile markets can be emotionally taxing, tempting investors to sell off assets. However, selling during downturns locks in losses and disrupts long-term strategies like dollar-cost averaging and dividend reinvestment. It can also create tax implications. A disciplined, long-term approach, backed by solid financial planning, is crucial for weathering market volatility and achieving sustained growth. At Eureka Wealth Management, I help clients through market volatility. Call for a free, initial consultation at (760)537-0791 or book online at eurekawealthmanagement.com.
^1 SP500 "SPY" may rebound at 417/418 as the long-term trend still appears to be intact.