Market Insight: Now What?

Oct 17, 2022

The feeling you have right now is normal. This has been one of the toughest periods for the markets in a while, and the amount of anxiety we are all experiencing is hitting elevated levels. It would be one thing if it were just depressed asset prices, but now we layer in global economic and geopolitical concerns. Believe us when we say this, we share your pain.

Where do things stand now?

Both stock and bond markets have continued to be volatile (perhaps an under-statement). After a brief “relief rally” in the summer, confidence was shaken again in August as inflation remained stubbornly high and the Fed became increasingly hawkish (as a side note, until now the market wasn’t sure they had the chutzpa to move this aggressively). Following the Jackson Hole Economic Symposium in August (think Woodstock for Global Central Bankers), we learned that Fed Chair Powell is willing to do whatever it takes to get inflation under control…even if that means “collateral damage” (your retirement portfolio and home values are right in those crosshairs).

In summary, both stock and bond markets quickly adjusted to the realization that a “pivot” (the Fed deciding that they are close to done raising interest rates) was off the table until inflation comes down meaningfully.  The result?  The performance of the classic “60/40” portfolio (60% stocks and 40% bonds) is down almost as much as it was during the 2008/2009 Global Financial Crisis – but yet we are not experiencing a deep recession and a near collapse of the financial system like we did then (and don’t anticipate that to be the case this time). The reason why we are experiencing this is because the bond market is declining in value due to the massive interest rate shift (rather than helping offset weak stock performance like usual when investors flock to the perceived “safety” of bonds). The silver lining here is that while bond prices have gone down temporarily, good quality bonds will keep paying interest while you wait for the values to increase back to face value when the maturity or call date approaches. You just have to be patient and ignore the “noise.”

Now the good news (well, kind of)

The good news at is that the stock market has likely priced in a lot of the bad news at this point (including the fact that a recession could occur). The S&P 500 was down approximately 24% through September 30th and broad bond markets were down approximately 15%. Again, to note the uniqueness of the current environment, this has been the largest decline in bond prices going back to 1976. 

The key thing to note is that when stocks have declined by this much, future returns out one, three, five and 10 years are typically quite good – even if there is more short-term pain to come.  Additionally, the days of low yielding bonds are also behind us. Quality bonds with yields in the 4%-6% range are readily available.  Money markets are now yielding approximately 3% and should continue to increase.  All told, this has not been a fun adjustment as the Fed has been ripping the band aid off. However, the skies have started to brighten for investors with a long-term investment horizon and that is what we recommend you focus on (rather than the daily fear that you might get in the financial news).

What do we do now?

  1. Get comfortable being uncomfortable and DON’T panic. The bottoming process can take a while, but we are ready to go against the grain and start buying when assets are cheap. It’s always darkest before dawn, as sentiment is usually the most negative before the markets turn. But when things do turn, they turn quickly, and you can’t be waiting for the “all clear signals.” By then, it will be too late.
  2. Opportunistically sell defensive stocks to buy stocks “on sale.” We are seeing discounts on certain stocks and market segments that we haven’t seen since 2008/2009. Now is a good time for us to find quality assets and start buying (either through cash or other assets we can harvest). We’re probably still early, but fast forward 3-5 years and we’ll likely find out it was a good entry point. Let’s just say we are glad we buy individual stocks and bonds because even in a tough environment, there are still investments that work when others don’t.
  3. For your cash and fixed income, we can lock in better yields than we’ve seen in a long time. This is good news for a retiree as we can now generate good cash flows to cover spending needs with lower risk. In addition, anyone with savings can now get paid for their cash.

Again, we know this has been a very uncomfortable year. We want to remind you that we understand your worries and have your back as we get through this. It’s not easy, but we have been through tough markets before, and know that a good plan, patience and a level head will help us prevail. If you just need to chat, please know you can call or email anytime.


NPF Investment Advisors

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