A Note from Our Founder on Markets
As graduation season ends and we begin gearing up for summer, we hope you are finding time to enjoy the warmer weather with family and friends. However, the ongoing uncertainty of the markets, the recent slew of senseless mass shootings, and other negative world news may be putting a damper on a usually fun and cheerful time of year.
Market environments like this one tend to bring out a lot of fear. Not only are equities falling, bonds are falling too. Meanwhile, inflation has spiked, and the Russian invasion of Ukraine continues to grind on alongside ongoing gun violence here in the U.S. Our hearts are with the families around the world as we grieve together due to these immeasurable losses of life.
It’s understandable to feel worried or overwhelmed in a time like this, which can sometimes lead to poor or rash financial decisions. I want to focus for a few moments on giving you some direct insight into how we at JSF view these turbulent markets in terms of risk—but also in terms of opportunity.
Bear Markets in Context
In the 26 years since I founded JSF Financial, we’ve been through three major bear markets with our clients. The first was the bursting of the tech bubble in 2000[i] and the horrific 9/11 attack in 2001. The second was the financial crisis, which put major banks out of business and ricocheted through the economy from 2007 to 2009.[ii] The most recent was the sharp downturn in early 2020 as a result of the ongoing COVID pandemic.[iii]
It’s impossible to know when the market bottoms, but one thing I’ve learned over the years is that the pendulum tends to swing pretty far in either direction. When markets are booming, investors (professionals included) can become greedy, pursuing a little extra return without considering the risk. When the pendulum swings the other way, it’s easy to get spooked and lock in losses by bailing out.
There’s a reason why Warren Buffet said, “Be greedy when others are fearful, and fearful when others are greedy.”[iv] I use this quote often in staff meetings and client meetings alike. My overall takeaway is to look for diminishing investor confidence and outflows as the sign that we’re getting closer to a bottom. Of course, no one can call the bottom of the market before it happens, but in the bear markets that have preceded this one, I’ve personally found a strong correlation between despair and opportunity.
In my experience, the investors who are rewarded the most are the ones with the courage to stay invested and allocate to areas that are out of favor. Of course, it’s not easy to buy into a falling market—courage really is the right word for this approach.
However, we believe it’s a worthwhile choice to consider for those who are at an appropriate time horizon and risk profile. For example, stocks and bonds are both falling at the same time at a pace we haven’t seen in decades.[v] The significant losses we’ve seen in both are, in other words, atypical. We are using this as an opportunity to realize tax losses, but we also believe it’s a good time—if one has the cash available—to reinvest and take advantage of an unusual market dynamic.
Inflation and Economic Pressures
It’s hard to miss the influence of inflation on our country and in our everyday lives—from the gas pump to the supermarket, higher inflation is hitting consumers hard right now. I believe this is another reason to maintain risk exposure: when inflation is high, keeping money in cash is a guaranteed loss. If inflation stays elevated compared to the past decade, putting your money to work in growth assets can help preserve buying power.
In the short run, the Federal Reserve is focused on tamping down inflation, which means we can expect to see the federal funds rate continue to rise this year. Analysts surveyed by Reuters expect rate hikes at the next three meetings, with a majority anticipating the federal funds rate to be over 2.5% by year-end.[vi]
What about the possibility of a recession? It’s hard to predict, but the possibility isn’t out of the question, as policymakers are in a tough spot right now. However, we’re not comfortable making an outright call on what happens next for the economy—there are simply too many variables at play, not just within our economy, but on a global scale.
Looking Ahead
All that said, in any difficult situation, we believe it’s important to look at the big picture and to plan for uncertainty. Your overall investment strategy with JSF was designed with times of turbulence (even recessions) in mind. Our goal is to help you prepare for and ride out these periods together with an eye towards your overall long-term goals.
We are here to discuss your questions and concerns about your portfolio or the markets at any time. This is a difficult period to be an even-handed investor, but it is our priority to help you navigate this period of uncertainty with prudence and a plan.
Thank you, as always, for your continued trust and support in our firm.
Sincerely,
Jeff Fishman
As we approach the Memorial Day weekend, we would like to take a moment to honor and thank American soldiers and their families for the sacrifices they have made for our country.
The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of NewEdge Securities, Inc. Neither JSF Financial LLC nor NewEdge Securities, Inc. gives tax or legal advice. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase or sale of any security. Investing involves risk, including possible loss of principal. Indexes are unmanaged and cannot be invested in directly.
Historical data shown represents past performance and does not guarantee comparable future results. The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or NewEdge Securities, Inc. as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.
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[i] https://internationalbanker.com/history-of-financial-crises/the-dotcom-bubble-burst-2000/
[ii] https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath
[iii] https://www.npr.org/2020/12/31/952267894/stocks-2020-a-stunning-crash-then-a-record-setting-boom-created-centibillionaire
[iv] https://finance.yahoo.com/news/warren-buffett-1986-letter-being-160854144.html
[v] https://www.wsj.com/articles/stocks-and-bonds-are-falling-in-lockstep-at-pace-unseen-in-decades-11651551170
[vi] https://www.reuters.com/markets/europe/year-end-view-fed-policy-rate-rises-again-recession-risks-remain-2022-05-20/
