Sentiments of hope, worry are ever present in stock market
Current financial position remains accommodativeDecember 2nd, 2021
Worry is real. So are reasons to be hopeful.
One of the hardest parts about dealing with worry is that there are usually good reasons to worry. Even in “good times” there are issues or potential issues, and the inevitably of struggle in some area of life—or of markets—is a fact.
However, it’s equally true that there are almost always positives to take heart from or have gratitude for. And similarly, while future struggles are an inevitable fact, so is the resilience of people, economies, and the markets that reflect them.
In a world where equity markets post positive annual returns 75% of the time, should your bigger concern be being too pessimistic or too optimistic?
A bit of a trick question, as having a plan to survive the 25% of years where markets decline, along with the many intra-year corrections, is vitally important to one’s financial success. However, if one considers the long-term impact of inflation—even in more normal times—coupled with the overriding resiliency of markets, there’s a good argument that “perma-bears” are likely to struggle far more than more optimistic investors—without saying anything about the stress they must carry along with such a mindset.
Some important facts to remember:
•Two-thirds of investors value money most for the security it can provide.
•Most people hate losing money more than they enjoy making it.
•The same part of your brain triggered by mortal danger is triggered by losing money.
There is truth that potential issues for markets almost always exist and will manifest at some point in fearful fashion. However, here are some other important things to keep in mind:
•Solid plans can provide a lot of security for you and your family.
•Money isn’t lost in most cases until you are forced to sell, and the right combination of a plan and portfolio can help buy you that time with proper cash flow.
•Odds of making counter-productive/emotionally induced decisions are diminished when one relies on a partner/plan instead of feelings during a trying time.
It’s also true that there are almost always positive catalysts for the market, and that over time, the market’s resiliency has eventually overcome even the darkest of times.
With that in mind, we wanted to share some positive points that show there are some real catalysts supporting markets today, despite some real challenges.
Overall financial conditions remain accommodative. Major developed markets have seen easy financial conditions, with the U.S. notably hitting a record low. We expect continuing loose financial conditions for developed markets to provide a positive impulse to overall gross domestic product growth in 2022, partially offsetting a monetary policy tightening cycle and fiscal policy drag.
Among other positive points, the labor market continues to improve, the semiconductor sector is strengthening, and the money supply remains high.
Keith McCullough, CEO of the Hedgeye investment research company, says, “The best way to combat inflation is to own it.” Yes, inflation is a concern but far less of one if you own a diversified basket of risk assets that will rise with the tide. So, while fear often leads investors in a knee-jerk fashion to old standbys such as cash and treasuries, that would be exactly the wrong move here.
While we expect the U.S. to remain strong, it’s decade of outperformance will likely be challenged sooner rather than later. More importantly, great companies can be found around the world with roughly two-thirds of the Global 600 outside the U.S.
In summary, worry is common, and reasons for concern are constant, but history is firmly on the side of those who prepare for struggle while simultaneously remaining conscious of the world’s history of resilience.
Tim Mitrovich is the CEO of Ten Capital Wealth Advisors LLC, in Spokane. He can be reached at 509.325.2003.