There are several factors that have led to this year’s down turn in the markets. In part, some aspects of the S&P 500 and Nasdaq were at all time highs by the end of 2021. The war in Ukraine and ongoing supply chain issues stemming from the pandemic have led to worldwide increases in inflation and interest rates. This creates quite a bit of uncertainty and fear. These all factor into the downturn we have experienced in 2022.
Those paying attention to the news will continue to hear concerns regarding changes in the market or a possible recession. Bear markets occur when the economic indexes are down more than 20% and a recession occurs when the economic indexes are down more than 30%. Currently, we are in a bear market but they do not all lead to recessions. Out of 26 bear markets since 1929, there were 13 recessions. Since WWII, bear markets occur every 5 years and last about 10 months, on average. It is hard to see that, in part, because we were on the longest bull market we have seen from 2009 to 2020. Though there is a credible possibility that we may enter into a recession, it will likely be short lived. We are in a much different place than in 2008, where defaults were happening because of high unemployment and over extension on debt. By comparison, we currently have low unemployment and many Americans have higher amounts of cash reserves.
Rising inflation is a major concern to many people right now. Federal Reserve Economic Data (FRED) suggests that inflation is starting to curb as 5 & 10 year breakeven rates have decreased to 2.6%, well below the 3.6% we saw earlier this year. Inflation on food and energy have started to come down. This could signal a slowing of inflation. Consumer confidence also appears to be at it’s lowest levels since 1980. Though the past doesn’t predict the future, history shows a bounce off these lows in consumer confidence and may spark a rally in the markets.
The analysts we track are signaling that companies and the economy are, overall, in a healthy position. Consumers are still spending money, have record amounts of cash in bank accounts, and are not overburdened with debt. Companies are still delivering positive revenues. Many of our analysts are looking at the markets coming in closer to 2021 levels within the next year.
We have added products, such as buffered investments and structured notes, to allow some downside protection. Additionally, we are adding investments that pay high monthly dividends to help add income and stability in this volatile time.