Since my last market update, the market news has finally begun to improve somewhat. As we all know, the market up until around 2 weeks ago was suffering through the worst start since 1970, over 50 years. (Longer than I have been in this business). All major averages were taking it on the chin. Given the Fed’s tightening policy, the overall economic news had been decidedly negative. Negative news event after negative news event was piling up to continually weaken the major averages in the first half of the year.
Then something changed in Chairman Powell’s post meeting remarks last week. He indicated that they were going to shift to more data dependency in their next September meeting policy announcement and “as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.” The market immediately reacted favorably despite a 75 basis point rate hike, 2 consecutive quarters of negative GDP readings and record high inflation numbers. In my view, this was a clear tone shift on the part of the Fed Chairman form one of hawkishness to one of more dovishness. A shift seems to be underway in the market now as a result from a more negative market psychology to a more positive market psychology. There may be light at the end of this tunnel.
Next let’s take a look at the following chart showing the history and bear and bull markets. This demonstrates the power of patience in long term investing.
However, this also means having to endure the inevitable drawdowns that come with every bear market. This is the cost of patiently riding out the bear markets.
And now cash levels are at their highest since 2011. This could act as fuel to move the market higher should confidence continue to improve.
And one last chart showing the long term real returns (after inflation adjustment) of various assets.
The S&P 500 recently crossed above the 50 day MA with less than 20% of stocks above their long term trend line. The last time we saw this was at the end of 2008 and after the low of 2009. This was the start of a multi move higher. And so there are some technical reasons to begin to feel a bit more optimistic. As always, thank you for all your support and confidence during a difficult market cycle. Please call us anytime with any questions regarding anything financial.
Famous Warren Buffett Quote: “Be Fearful when others are greedy and greedy when others are fearful”