Stan's World - Here we go againSubmitted by S. F. Ehrlich Associates, Inc. on May 17th, 2022
May 15, 2022
To long-time clients, let me start by saying: “Here we go again.” To newer clients, I’ll say: “Don’t worry; this is normal.” And to everyone else: “Buckle up for the ride.” I am referring, of course, to the latest, and current, stock market correction.
Market corrections always cause some degree of uneasiness. Since opening the doors more than 26 years ago, I have yet to find an easy way to share disappointing portfolio performance news with people who trust you to take care of their finances. We know our clients: we know your faces, your stories, and often, we know about your struggles. Much like a roller coaster ride, the trip down can feel terrifying.
There are four stages to an economic cycle (expansion, peak, contraction, trough), and stock markets have similar cycles. The chart1 below depicts bull and bear markets from 1926, to include total returns and duration for each. By definition, cycles are transitory in nature, though we never know how long each phase of the cycle will last.
Even as we go through the current market correction, remember that the stock market is also a leading indicator. It often drops in anticipation of an economic slowdown, and then expands long before the economy appears to be turning around. What the market is telling us now is that company profits are under pressure from both inflation (higher costs for labor, material, and energy) and potentially slowing demand if a recession occurs. Markets go up when investors perceive value for their investment dollars, but markets are now falling because investors are uncertain as to the return on their investment over the near term.
We want clients to understand the fundamentals of economic cycles, so we write newsletters and memos throughout the year to share information we’ve learned. In fact, we build portfolios knowing there will be times like this. Still, when downturns occur, we know some clients will be unsettled.
While we may want to minimize your level of stress when markets get roiled, we also realize that all of our charts and empathy may not always assuage your feelings. We get it, even if you don’t always share those feelings with us.
The beauty of having a financial plan is knowing it was built for good times as well as the more turbulent periods. If you need an update on where you stand, we’re just a phone call or email away.
NOTE: If you have a friend or loved one who is troubled by stock market performance, please call us on their behalf. We’ll share information that you can use to help them feel more confident or even speak to them directly. There’s simply no need for people to be overly stressed by market performance.