Month in Review - Sep 2022, Timing vs TIME IN.
We hope that everyone had a wonderful Thanksgiving. It’s true that despite the market performance year to date, we have a lot to be thankful for.
The past couple of weeks have been interesting, to say the least. As September was ending, major global indices hit new lows while Treasury yields spiked to levels that we haven’t seen since the Global Financial Crisis of 2008 in reaction to the U.S. Federal Reserve’s continued hawkish tone and re-pricing of expected rate increase through the end of the year and into next. As October started, we saw a potential “Halloween rally” as global markets rallied between 5% to 7% in a few days on oversold conditions and hopes of a pivot by central banks.
Despite this renewed volatility, patient long-term investors can take advantage of the selloffs. While there may be continued short-term volatility and additional downside risk, it’s impossible to time the bottom. We are more positive today than at any time in 2022. We believe there’s a lot more certainty regarding inflation, interest rates, and the health of the global economy.
While in the middle of the storm it’s hard to see that clearer weather is ahead, we believe we’re much closer to the end of this bear market and that patient investors are likely to be rewarded. Remember, the opportunity cost for investors to reach their financial goals is NOT protecting against the potential of another 5% to 10% downside from these levels, but rather missing out on the next bull market that happens after each bear market.
We think fixed income remains attractive as well, especially in investment-grade quality bonds with intermediate to shorter duration. As we get closer to the eventual peak in yields and the expected recession, the next opportunity in fixed income would be to add to duration.
Time IN the markets vs Timing the markets
Everyone has heard it at some time, as it may be one of the most-used investing quotes. The challenge is that there’s no consistent strategy as to when to get in and out of the markets. The distribution of worst vs best days makes it hard to execute.
As reported by Bloomberg, in 2020, apart from two data points, the best 10 days (returns between 3.4% to 9.4%) and worst 10 days (–3.5% to –12%) all occurred during March and April and were intermixed. In 2011, apart from one data point, the best and worst 10 days were sandwiched between the months of August and November.
If we had a crystal ball and the time to execute, timing the markets is likely a much better strategy. However, in practice, time in the markets is a more realistic strategy.
If time in the markets allows many investors to meet their financial goals, we shouldn’t get greedy trying to avoid the worst days because, ultimately, we’ll likely also miss the best days.
As we continue to watch the markets and evaluate for risks and opportunities, please know that our focus at Banks Financial is “investment with a purpose,” working to help you meet your financial goals with the least exposure to unnecessary risk.
The Banks Financial team.
Roger Banks, RRC
Michele Piereder, licensed administrator