There’s no beating around the bush - Q2 2022 was a tough quarter and first half of the year 2022. However, the long term expected return of the market is in place and we know that market downturns are a normal market behavior. It’s not pleasant to experience them for sure. Looking back over time, here’s how bull markets and bear markets look 1926 - 2021 using a 10% threshold for downturns There’s a ton more bull than bear which makes sense because of the enormous wealth generated over time in the markets.
What about average annualized returns AFTER a Market Decline of more than 10%? The image below shows the market results after all the 10% declines 1926-2021. Since we know that the market consistently moves higher in-between downturns and continues reaching new highs, then the data below is unsurprising. However, the media markets love talking about the markets when they are down, and that negativity causes many smart calm people to lose their perspective. Look back at history and you’ll have the confidence that we have that 3-5 years from now we’ll see that mid 2022 was a great time to add money into the market.
It’s important to note that just before January 1 , 2022, (4/1/2020 to 12/31/2021) we experienced returns from 33% to 86% in our 8 model portfolios.
Our clients received a bit of a Q2 2022 break due to the greater than market weight exposure to Value stocks, both Large Cap and Small Cap. Here are the results of Q2 2022 Value performance compared to the overall USA market in Q2 2022:
Large Cap Value Stocks: -12.2%
Small Cap Value Stocks: -15.3
USA Market: -16.7%
NASDAQ -22.7%
An important goal of investing and diversification is experiencing lower drops in account value in down markets. It means there is less distance for stocks to grow to replace the temporarily lost value. Yes there is out-performance in down markets and it call counts!
What’s going to happen? The lower stocks go, the stronger they will eventually rebound. We just can’t accurately predict the pattern of when the bottom is reached, and how quickly it rises and when it reaches the next peak.
What about inflation? There are many signs pointing to inflation easing and in 6 months, based on what we know now, we think it will be lower, maybe significantly. Like many aspects of the market, inflation is self-regulating. The higher prices go for any one product or service, buyers will either reduce their consumption or find alternatives and with less demand, the price will drop.
Next data points are this coming Wed/Thurs. If inflation starts “surprising” by being lower than expected, that might be part of the catalyst for the market to improve. In part because it might mean that the Fed decides to lessen their current aggressive stance on raising interest rates. It’s easier for the economy to flourish with lower interest rates.
Want more - dig in to all of our usual quarterly portfolio and market reviews below. Please find the following supporting documents:
2-page Model Std Portfolio Performance