What investors need now is patience and courage – Saratogian
The headlines in 2022 have been overwhelming; the Russian-Ukrainian conflict, the persistence of Covid-19, China’s lockdowns worsening supply chain disruptions and inflation at its highest level in 40 years!!!
So what has changed on the inflation front? The Consumer Price Index (CPI) for May was bright red, rising +1% in the month and year-over-year inflation rate came in at +8, 6%. Inflation is a moving target, which means that the Federal Reserve’s Open Market Committee may change its course with each new report. They had no choice but to raise rates by 0.75% last week, which they did. This is the first time since 1994 when they raised rates by 0.75%.
The Fed has lost some of its credibility and needed to send a strong message to America that it will do its best to control inflation. Fed Chairman Jerome Powell, Treasury Secretary Janet Yellen (former Fed Chair) and the White House said a year ago that inflation was “transitional and temporary”. Well, they obviously had their head in the sand as they missed the opportunity to contain inflation by initiating rate hikes last year rather than last month. American consumers have a lot less money because they pay a lot more for goods and services, especially for essentials like gas, food and heating bills. Hopefully the Fed can get us to a soft landing and not plunge us into a deep recession.
These are uncomfortable times for investors, especially this week when so many people have this sense of surrender, the action of surrendering to owning stocks. In some ways this can be a good sign, because we have so much bad news in the markets that any good news will swing the markets. Investors want and need to be invested when they change course.
If you have money to invest and/or have never invested in stocks, now would be a good time to buy low with the S&P 500 down over -20%. So if now is a good time to buy stocks, why should investors want to sell stocks?
If investors took a snapshot of their returns over the past 15 years, which includes the financial crisis of 2007-2009 where the S&P fell -50% and the onset of Covid-19 in early 2020 where the S&P lost – 34% over a few short weeks, in hindsight those losses look like a smudge on the radar screen. This current bear market will also look like a dot on the radar screen in hindsight. Over the same 15-year period, the average annual return of the S&P was +9%, the Nasdaq +14% and bonds +3%.
A little known fact that I thought was appropriate for these times is that the two lions in front of the NY Library have the nicknames “Patience and Courage”. At the time, New York City Mayor Fiorello LaGuardia told a reporter, “The people of this city have two cardinal virtues, patience and courage.” Mayor LaGuardia felt in the 1930s that New Yorkers needed patience and courage to weather the Great Depression.
Stocks have recovered from every correction, bear market and recession and have continued to reach new all-time highs, the best part is that the world isn’t over yet. Investors who panic and sell are usually losers when markets rebound from their lows to record highs.
I’m going to steal Mayor LaGuardia’s line and say that investors need patience and courage now more than ever.
Steven Bouchey, CFP® is founder and CEO of Bouchey Financial Group, Ltd. with offices in Saratoga Springs, historic downtown Troy and South Florida. Email your questions about investments and financial planning to [email protected] The information in this column should not be considered the receipt of personalized financial advice and please consult your financial advisor.