I hope your summer is off to a great start! I’ve been enjoying being a first-time grandmother and starting anew by moving into a new house. It is fun and refreshing to clean up and out.
As for the markets, it’s been frustrating that the U.S. and International stock markets, the U.S. economy, and the bond, real estate, and natural resources markets are not performing well. Even the old inflation standby, gold, is not offering hope or help. These are tough times, but I’ve seen many a tough time in my forty years as an advisor, and I know for sure that there are good times ahead.
Higher prices throughout the economy, higher interest rates from the Federal Reserve, and the ongoing Russian war on Ukraine make market participants and people on the street uneasy. And with this uneasiness, the market continues its relentless dive from all-time highs in early January. The current correction has taken us into a bear market in almost all asset classes. I’m hopeful we’re closer to the end than the beginning. We’ll see.
We initially did well in this bear market by recognizing it and moving heavily to energy, consumer staples, and commodities, which were the only asset classes better and stronger than cash. Had those sectors not been so strong, we would have raised even more cash earlier. Now those asset classes are rolling over too, so I have been selling into good or decent days to raise even more cash. Our clients still hold assets considered to be defensive — utilities, energy, consumer staples, and non-traded real estate. Commodities and energy are showing long-term strength when compared to cash, but cash is currently stronger. There seems to be no place to hide, as the bond market has been in a bear market since October. And no matter what the media is telling you, we are in an economic recession. Like the bear market, we don’t know how long it will last, but I think I will recognize the end of the bear market long before we see the end of the recession.
I wish I’d bitten the bullet at the end of 2020 and sold Google, Microsoft, Tesla, and Amazon; I thought they would recover faster. Now I believe we are closer to the bottom for these large cap tech growth stocks and do not want to sell. They have been the hardest to hold and have lost the most this year, with all being down 20 – 30% at the worst. Amazon, Google (Alphabet), and Tesla have all declared stock splits this year to lower their prices and make their stocks more attractive. I think that will play a large role in the recovery, which could be phenomenal as in 2020 when investors returned to technology. We are approaching the washed-out level when the smart money decides to come rushing back in to run the markets back up, but I don’t think we are there yet. On Wednesday, I increased client cash levels by selling all or half of holdings in commodities, oil, and agriculture. Consumer staples stocks are trying to gain a foothold again, and your General Mills kind of stocks are looking attractive. However, I am hesitant to invest right now and am more willing to raise additional cash until I see supply decreasing and demand returning.
A great sale is building. I encourage you to continue to deposit money to your accounts or save money in savings so that we are ready with funds to buy in when the signals show us the smart money is coming back.
I am always thankful for the point-and-figure charting system that lets us see what is happening. Please call me if you have questions or concerns. We know it’s hard seeing your account values decrease, but we know opportunities for great growth are coming, and we’re confident we’ll see those opportunities and take advantage.
