facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
June 2022 Market Insights Thumbnail

June 2022 Market Insights

By: Ryan P. Johnson, CFA, CFP® - Director of Portfolio Management & Research

Living through investment losses and down markets is not easy; it can take an emotional toll. It is human nature that the pain of losses is much higher in magnitude than the joy from gains of a similar amount. We are here to help you navigate through periods like this and encourage you to focus on the longer term. Sticking with plans that have been made and not selling when prices are low takes discipline. 


Why should investors go through these market gyrations and the emotional swings that come with it? These are the risks that create the reward. While the average bear market has lasted less than a year, the average bull market has lasted over 4 years. Sticking with your plan and staying invested through the tough times means you are also invested for the great times. Selling is easy but getting the re-entry timing right is extremely difficult. If you are close to retirement, or newly retired, please remember that your investments are needed for the decades ahead, so try to not focus on the week-to-week volatility. Investment returns and cycles are best measured in years. The range of historical returns in any one year is huge but the range of annualized returns over 5 or more year periods skews quite positive.


On June 13th the S&P 500 officially entered a bear market by closing more than 20% below its most recent closing high. This is the first bear market since early 2020, while the last bear market before that was in 2009. The S&P 500 is still above the pre-pandemic high from February 2020 and the index is up approximately 67% from the pandemic lows. Even though it was just over two years ago, it is hard to remember that stocks rallied 40% in three months after the March 2020 low.

Inflation is the primary concern of the markets right now. Headline consumer inflation of 8.6% was hard to imagine just a year ago. That price index has increased 14% in total from two years ago, but 3-year inflation has averaged 4.5%. Government stimulus, low unemployment, “post-COVID” spending, and Russian war-induced oil prices have all fueled higher prices. The Federal Reserve raised short-term interest rates by 0.75% this week in an attempt to slow the economy and they plan to raise rates again in July and September. The Fed intentionally stayed behind the curve with no rate hikes in 2021 to allow for a strong economic recovery, but now that inflation is well above target, they are playing catch-up. This is a headwind to stock and bond prices.


In recent weeks, several examples of extreme sentiment have been seen; we believe extremes can present opportunities. Investor sentiment surveys have reached extremely bearish levels, which have historically been followed by positive markets 1 year later. Consumer confidence recently reached multi-decade lows. Previous survey lows have come near market lows. Lastly, as of May 25, the first 100 trading days of 2022 showed the fourth-worst start to the year for stocks in nearly 100 years. The other five other worst starts were followed by gains for the rest of the year. To paraphrase a Warren Buffett quote, is now to be a time to be greedy while others are fearful?


We have worked with our clients to set the appropriate mix of stocks, bonds, and other investments considering both individual risk tolerance and several years of spending needs. In our regular portfolio reviews, we took profits several quarters in a row, reducing stock exposure when markets were in an uptrend. Regular rebalancing (selling or trimming when prices are high) helps smooth out volatility, but staying invested in difficult times is paramount to achieving the best potential long-term returns. Your allocation to stocks has been carefully planned for so you do not need to fear when markets decline, and you are not forced to sell low.


Do not let fear drive your investment decisions and try to focus on what you can control. Opportunities within equities today could include tax-loss harvesting in taxable accounts (while being mindful of wash sales), Roth IRA conversions, and making changes within stocks but not to the overall allocation. Within bonds, we believe there are opportunities to take advantage of lower prices as well. As interest rates have moved up, bond prices have moved down. The U.S. aggregate bond index has a double-digit loss this year as well. While we have focused on owning shorter-term bonds, this may be an appropriate time to extend the average maturity, or duration, of your bond investments to capture yields that are the highest investors have seen in several years.


While Buckingham Advisors continues to grow thanks to introductions from our valued clients and strategic partners, our focus remains on serving each family, each business, each foundation, with special attention to what matters most to each client. If you found value in reading this edition of Market Insights, please send this issue to them. If you or they would like to be in touch directly, here’s a link: https://mybuckingham.com/contact. 

Thank you for your continued trust and support.

Ryan P. Johnson, CFA, CFP®
Director of Portfolio Management & Research

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.