Markets staged a rally to end May modestly higher. This was a welcome change from the prior months, but the respite appears short-lived as June has been a rough month in both stock and bond markets.
Yesterday morning the S&P 500 opened in bear market territory. It joins the Nasdaq and the Russell 2000, both which have been in a bear market for a while. 2022 has been a tough environment with the last 5 days being the worst since March of 2020, but the difficulty started in the second half of 2021.
To be frank, it feels like there should be more to say than there really is.
Central banks are tightening the money supply, and markets are adjusting to this reality. The pandemic response led to excesses, and those excesses are getting wrung out. Our view is that in the long-term, this is not such a bad thing, as the economy continues to normalize, but the short-term can be tough to live through.
A common type of question we get is related to market timing, as a recession seems increasingly possible. This question is focused on moving to the sidelines and looking for a more opportune time to jump back in. The issue with a market timing approach is that it almost never seems like the right time to invest. There are always unresolved issues or another potential “shoe to drop”. In our experience, the market tends to rebound before the economy or news improves and missing that rebound is costly. From an investment perspective, the right thing to do is oftentimes the hardest thing to do. In this instance, we think that is simply waiting it out.
We believe that the best way for individual investors to weather a bad market is to have a strong personal balance sheet. One aspect of that is having enough liquidity to avoid raising cash at an inopportune time. In addition, having a financial plan that considers bad markets should also assist in providing perspective on the longer-term.
