In the next few days, many investors will be opening their monthly statements with some level of trepidation. Understandably, most investors are asking the question, “how much more can I take?” Some investors, especially those with years ahead of them, are currently buying stocks and bonds. Others who have less time are turning “cautious.” I would suggest that being “cautious” can be the prudent thing to be. I could also suggest that buying “blue-chip” US companies, especially at these lower prices, is prudent. In other words, each investor is unique and has their own tolerance for risk and reward.
The level of volatility we have been experiencing in the financial markets is somewhat breathtaking. In my forty years of watching the markets, I cannot remember a historical comparison when markets have been this disorienting. I would add that circumstances worldwide have been equally unsettling; from a global pandemic to the war in Ukraine, finding some semblance of pre-pandemic living has been allusive.
Investors have always battled “fight or flight;” when navigating a market of stocks and bonds. Many may feel afraid to buy investments but equally afraid to sell them. If that’s you, welcome to the club.
The Federal Reserve has raised short-term interest rates and is pointing towards further increases over the next few months. Under normal conditions, this uncertainty would cause a ripple in the markets. But, with other factors in play, particularly inflation here in the United States and around the world, the volatility appears to be signaling confusion more than fundamentals.
We appear to be in a bifurcated moment where the markets reflect a recession, but our eyes see an economy strong and growing. It is not unusual to see financial markets become detached from the economy’s fundamentals. As you look through history, that situation happens all the time. Is it different today? Probably not.
Two things to keep in mind as you look at the market. 1. When interest rates rise, bond prices fall. 2. Stock prices as they move up and down will not usually adequately reflect the health or financial condition of the underlining enterprise. Balanced portfolios can be negatively affected by both. In the short run, the diversified portfolio has not been as stable in 2022 as it has been over the past few decades.
At West Michigan Advisors, we continue to evaluate current economic and market conditions. As we all are investors, we understand and experience these anxious times with you. Our objective is always to strive to keep you on a plan. That will look different for everyone, but rest assured we are monitoring your portfolio and will make recommendations when appropriate.
I will end with this; I am confident we will come to appreciate the resilience of the US economy and the American system. I know the markets won’t always reflect my optimism, but history has indeed shown that. Sometimes I must remind myself that our democracy has created the most dynamic economy the world has ever seen. I believe the entrepreneurial spirit will once again solve the most complex issues facing us today. In other words, “buy America” history suggests it is a good bet.
As always, we are grateful for the opportunity to be your advisors.
West Michigan Advisors
The information has been obtained from sources considered to be reliable, but accuracy is not guaranteed. The views and opinions expressed are those of Kevin Clark, Managing Partner of West Michigan Advisors, are as of this date, and are subject to change without notice. Further information is available upon request. Past performance does not guarantee future results. There can be no assurance the trends mentioned will continue. Investing involves risk and you may incur a profit or loss. No investment strategy is guaranteed to be successful.