Market Update

US markets have officially entered a bear market, with only 1932 representing a worse start to the year for the key S&P 500 market gauge. A 50/50 portfolio of global equities and global bonds look set for their worst quarter in history.

However, it is worth noting that the above tells us that we are at extremes and hindsight will tell us that a move to cash in early January would have represented a salient New Year’s Resolution so far this year. Last Monday every constituent of the S&P 500 was in negative territory at some point (first time since 1996), and the wider New York Stock Exchange advance/decline ratio was the most negative since 2007. The moves over the weekend in riskier ‘assets’ such as Bitcoin (-70% from record high) also suggest sentiment is now negative in the extreme.

What does history tell us at this juncture?

Firstly, do we know when equities will start to rise significantly again? No, we don’t. But there are some things we do know. We know that there is technical overselling. We know that negative sentiment is extreme (Bull/Bear Spread). And we know that valuations are now below ten-year averages (Global P/Es). We also know that if you had stuck with stocks after the first 25% fall in 1970, 1974, 2001, and 2008 you would have been back in positive territory in between two and five years.

This is all very easy to note ‘ex-post’, and the price of admission to this point has been double digit declines across multi-asset funds so far this year. But the declines experienced by some investors in certain risk assets (single ‘meme’ stocks, cryptocurrencies) do not in general represent the returns experienced by those who engage with a financial advisor.

Markets may have ‘changed’ in the short term, but if a person’s circumstances haven’t it is highly probable that the plan, fund choice etc, at the start of the year continues to be the right one. It is also known that even in a world of rising interest rates; real returns are still negative – and are lower than they were at the start of the year. Inflation is decimating the purchasing power of money held on deposit more than any time this century. This is a crucial point for investors looking to save for the longer term. Whether for pension, child’s education, or a rainy-day fund.

Equity markets are under pressure, inflation remains hot, and interest rate policy continues to heat up. However, in scenarios such as this, those with cool, calm heads will prevail. This can be achieved by people engaging with their advisor, sticking with their financial plan, and recognising that the price volatility experienced whilst investing is the admission price for long term investment returns.