Hello Friends, here is the latest on negative news connecting to negative financial markets, from AssetMark ~ The Madison Poole Crew
Key takeaways
• Negative news creates fear for investors which can lead to emotional investment decisions due to worries about ensuing negative financial markets.
• Negative news can provide great investment opportunities, but it takes a strong stomach and the ability to shut out the noise to do what’s right for the portfolio.
Scary headlines, recessions, and bear markets all have negative connotations and create fear in the minds of investors. Fear drives emotions, which can lead to investment mistakes. Moving out of the financial market at the wrong time can cause long-term damage to portfolio values.
Scary headlines
News headlines tend to be sensationalized, trying to create a reaction. But bad news can provide some great investment opportunities. Below are six different major events over multiple decades and the subsequent 10-year annualized return of the US equity financial market.
Pearl Harbor
Sputnik Launch
Kennedy Assassination
Nixon Resignation
Black Monday
Lehman Bankruptcy
12/7/1941
10/4/1957
11/12/1963
8/9/1974
10/19/1987
9/15/2008
16.2%
12.1%
7.0%
12.9%
18.9%
11.7%
Recessions
Recessions create fear that worse times are to come. The economy is suffering, and people need to buckle down and prepare for harder times. But economic data is backward-looking, while financial markets are forward-looking.
As shown below, in five of the last six recessions, US equity markets trended upwards and saw some substantial returns. The reason for this is that the market is looking forward to an improving economy and tends to rebound six months prior to the economy bottoming.
6/1/1980 – 7/8/1981
1/6/1982 – 7/8/1983
4/25/1991 – 12/22/1992
11/26/2001 – 7/17/2003
12/1/2008 – 9/20/2010
6/8/2020 – 7/19/2021
16.1%
40.2%
16.1%
-15.2%
40.0%
31.7%
Bear markets
Bear financial markets can be painful for an investor’s portfolio and create a stomach-churning ride. Emotions run wild, and staying invested, let alone investing in the market, is gut-wrenching. But the other side of a bear market is where some of the best returns are found in the market.
US Equity Financial Market Returns Following Five Deepest Bear Markets (1929-2022):
Year 1
Year 2
Year 3
Year 4
Year 5
70.9%
12.7%
9.8%
26.3%
10.2%
Looking at the five deepest bear markets, the average five-year annualized return was 23.1%. But what’s interesting, as shown above, is that most of that return is driven by returns seen in the first year following the bear market.
Shutting out the noise
In today’s world, news and opinions hit us from all angles. There’s no wonder emotions run wild, and worries rise about investment portfolios. But the negative news does not always mean negative markets. In fact, it can actually provide some great investment opportunities.
While it’s hard to stay invested during these times, putting cash to work in the market is even harder. But if investors can shut out the noise, focus on the long term, and take that gut-wrenching leap, portfolios can benefit from some of the best returns seen in the equity market.
To prove this point, below is a graphical representation of $100 invested on a monthly basis into the US equity market starting in 2007. Each data point represents the value of each $100 as of June 2023. What is clear to see is that the $100 invested during the depths of the Global Financial Crisis had the greatest value in the portfolio.
Long-term returns are only achieved by staying disciplined, shutting out the noise, and doing what’s right for your long-term goals. And that’s spending time in the market rather than trying to time the markets.
Final Value of each $100 monthly investment in US equities starting in 2007:
Source: Zephyr Style Advisor. US equities represented by S&P 500
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This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.
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