Erica M. from Waterbury, CT asks: Hi Mitch, I’d like to hear your thoughts on this being the worst first half of the year for stocks in something like 50 years. It feels like this is bigger than just a possible recession, and many are saying it could get worse. Do you agree?
Mitch’s Response:
Thank you for sending your question. The stat lines you’re seeing about 2022’s start for equities is correct. U.S. stocks as measured by the S&P 500 posted their most negative first half of a year since 1970, and even investment-grade bonds and U.S. aggregate bonds posted their worst start in history.
These statistics probably feel pretty scary, but I think it’s important to note for context that this was not the worst six-month stretch for either category. The stat lines are referencing performance from January to July, but at the end of the day, stocks, bonds, and risk assets don’t actually follow a calendar.1
Investing During a Potential Recession…What Steps Can You Take?
The market took a complete turn since the beginning of this year. Inflation continues to rise and recession talks are still in the air. Many investors are worried about their portfolio and retirement assets.
First, we believe it is essential to look at history to understand the importance of avoiding rash moves. It’s common for investors to think they should time the market or exit the market out of fear, but as difficult as it may seem, it’s better to remain calm.
It’s easier said than done, but the actions you take right now have the greatest potential to define your financial future. That’s why we have put together a free Black Swan Investing Playbook with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today.
Download – The Black Swan Investing Playbook2
Nevertheless, the sharp downturn has rattled many investors, and it’s natural to wonder whether it only gets worse from here. The short answer is that it might, but it is also crucial to understand that at some point – which no one can forecast – stocks will rally back quickly and strongly. And these rebounds almost always happen when investors least expect it.
Investors should be on the lookout for worsening narratives about the economy and more negative headlines, which usually signal that stocks are establishing a bottom. As I’ve said before, now is a time to be patient – investment assets are far cheaper today than they were at the beginning of the year, and that’s ultimately a good thing for investors looking out over the next 12-36 months.
Another factor to consider is that weak stretches for stocks are usually followed by strong ones. When the S&P 500 has declined more than -15% in the first six months of the year, as we saw in 1932, 1939, 1940, 1962, and 1970, the average return in the second half of the year was +24%. These rallies tend to happen because the selloffs pull valuations down to levels where stocks become very attractive relative to future earnings and cash flows, and buyers swoop in to secure ownership of those future profits at a relatively low cost. In the current environment, if the U.S. evades recession or the recession is shallow relative to past pullbacks, the market will suddenly appear oversold, which I believe it is now.
Almost everyone at this point is looking for the recession and staying worried about the impact of inflation, which in my view means that these fears are already baked into stock prices. What I’m looking for is an outcome that is even just slightly better than what the gloomy forecasts are calling for, and I think we’ll get it this year with moderating inflation pressures and better-than-expected growth.
So, in times like these, it is better to base your decisions on research, not emotions! Don’t sell and exit the market or wait on the sidelines out of fear.
To help you do this, we have put together a free Black Swan Investing Playbook3 with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today. You’ll learn about seven time-tested guidelines to help you seek investing success through this historic “Black Swan” market downturn.
Disclosure
1 Wall Street Journal. July 1, 2022. https://www.wsj.com/articles/markets-head-toward-worst-start-to-a-year-in-decades-11656551051?mod=hp_lead_pos1
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.
3 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.
Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees or other expenses. An investor cannot invest directly in this Index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Barclays Capital U.S. Aggregate Bond Index represents the price and yield performance, before fees and expenses, of the total United States investment grade bond market. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.