To say the news cycle this year has been overwhelming would be quite the understatement. Supply chain issues, COVID constraints, a hawkish Fed, a war overseas, record inflation, a potential recession, a bear market, midterm elections, 2024 election prospects, and a $44 billion dollar buyout of a social media giant, along with hundreds of other headlines, have inundated investors and the American people, and all of this can cause feelings of panic and instability. We at Marathon are here to remind you to breath.
As we digest all of this news, we look back on the year that is quickly coming to a close. Inflation has led to a historically aggressive Federal Reserve, whose tightening policies have put a strain on the US markets. All three major US indices (the S&P 500, the Dow Jones Industrial, and the NASDAQ Composite) have all entered “bear market territory” at some point this year, meaning they are down at least 20% from a recent high. Obviously, the Fed isn’t solely to blame for this, and the argument can be made that all of this action is warranted and necessary.
But what does this mean for you and your portfolio? As we reflect on the year and the strategy each investor has going forward, we have found that one word seems to summarize exactly what we are doing and feeling. Patience. The question rattling investors confidence right now is whether the US economy sinks into a recession in 2023 (or are we in one right now?) Based on the data and economic projections, we feel that a recession is entirely likely, as the window for the Federal Reserve to pull off a “soft landing” has tightened. We remind you, the markets don’t tend to wait until the recession is declared to “price one in” and many analysts feel a potential recession could already be priced in, meaning we could already be trading at levels that account for the recession. We add to this that it is unlikely the Federal Reserve continues this pace of interest rate increases long-term, and we see the potential for opportunity in the markets going forward.
Both the equity (stock) and fixed income (bond) markets have struggled in 2022. The Bloomberg US Aggregate Bond Index, which is a broad based bond index comprised of intermediate term, investment grade bonds tradable in the US, has also posted double-digit losses this year. As interest rates increased, bonds currently on the markets priced lower to compete with the higher interest rates. This could lead to potential opportunities in the fixed income markets, as well as the equity markets. Although historical data is not a guarantee of future results, the markets have historically performed well following a bear market and recession.
To summarize these points, we go back to “patience.” The markets have been in decline for nearly a year, and as investors, you’ve remained patient to this point. We look past the negativity to see the opportunities that lie ahead in 2023 and beyond. Remember, we are here for you. A majority of portfolios have a long-term outlook, and we will continue to help guide you towards your goals.
All of us at Marathon Financial Advisors wish you and your loved ones a safe and happy holiday season, and wish you a prosperous and healthy New Year to come.