Welcome to the wobbly middle.
We are now six months into this. The shock of being in a down market has worn off and become the new normal. Many markets have recorded their worst six month period in decades. The ‘Federal Reserve’ and ‘rising interest rates’ have become household discussion topics. News media has had an increasing focus on economic reports, with the hope of making sense of it all.
This is the middle of a bear market cycle. Most market participants, both big and small tend to be more sporadic during these periods, making trades to avoid impending doom, or trying to buy at the precise bottom. This causes markets to be extra sensitive to normally routine economic updates.
The current down markets make a bit more sense, when viewed from a wider perspective. The stock market was up double digit percentages for three consecutive years (2019, 2020, and 2021). Simply put, if you have been invested since 2019, you are in a better position now then you were back then, even with the recent downturn.
The Good and The Bad
The good news is, that market volatility over the last five weeks is at its highest point since 1928 causing a lot of negative sentiment, over the past 80 years similar instability coincides with the end of bear markets.
Personal income and employment are two critical measures of economic activity, and both of those are still very strong. Personal income is at an all-time high, and the unemployment rate is at 3.6%, one of the lowest unemployment rates in the last few decades.
People's inflation expectations are dropping. This is important because high inflation expectations are a major drain on consumer sentiment. This is also good news for bonds, which are valued higher if inflation is expected to be lower.
Now for the bad news.
The price of copper is going down. Why is this bad? Copper is widely considered a leading indicator for economic activity, due to its wide range of uses in industrial applications. In the last 30 years, the growth rate of copper usage globally was negative only in 5 years. Out of which, an economic slowdown was evident in 4:
1991 → Spike in global oil prices
2001 → Dotcom bubble
2008 → Financial crisis in the US.
2020 → Covid-19 pandemic
The Federal Reserve has emphasized that their singular focus right now is containing inflation, and they will not stop raising rates until they have accomplished their goal. This can mean equal pain for the stock and bond markets in the short term, but most would argue that it is better than the alternative of higher inflation for a longer duration.
Global credit is declining. This is a measure of loans issued by banks and other lenders. It’s a good leading indicator for economic growth and the performance of several asset classes, and just registered lower than the previous bottom (2008 crisis).
We have not made any changes to the portfolio since our last update as we continue to monitor the economic measures that impact the markets. Please give us a call if you have any questions!
Citrus Wealth Management
O: 909.312.4412 // F: 909.312.4441
1461 Ford Street, Suite 103, Redlands, CA 92373
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Blaine Shira and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.