Clarity Capital Management Notables - February 25th 2022
Clarity Capital Management Notables Audio Version
By now we’ve all heard the news about what’s happening in Ukraine. We are going to stay away from reporting anything new related because by the time you read this, new developments will have already occurred.
We do want to give a heartfelt acknowledgment to the people of Ukraine and their families. This is a terrible tragedy, and our thoughts are with them. It’s been amazing to see the global support for the people of Ukraine, and we can only hope for a quick resolution to the needless suffering in this conflict.
In addition to the news out of Ukraine, you may have noticed the swings in the global financial markets. There are a lot of different reasons for this volatility including: future interest rate activity and Federal Reserve expectations, concerns over inflation, and the ability for our economy to heal after the pandemic. This makes the news from overseas feel even more concerning.
Although we know that every issue we face is a little different, looking back to historical events can help us understand what may happen in the future. This allows us to potentially understand how financial markets may react, both to geopolitical events or otherwise. History tells us that markets are resilient and stocks have tended to recover fairly quickly.
We must remember that market corrections are perfectly normal and healthy. Although it never feels like it in the moment, the volatility that we are seeing now is also normal. We just haven’t seen much of it in the recent couple of years…which is NOT normal!
JP Morgan’s Guide to the Markets reports that since 1980, the average intra-year decline in the S&P 500 has been 14%. For some context, the S&P 500 as of today’s close is down year-to-date by only around 8%, with broader international indices down even less. While the average intra-year decline is 14%, the average annual return for the S&P 500 in this time period is about 9.4%.
Thursday’s market activity was a perfect example of why we preach to “stay the course.” The S&P 500 opened down significantly, over 2.5%. However, by the time the market closed yesterday, the S&P 500 finished up for the day by nearly 1.5%. It was a nearly 4% intra-day move in the market. As of Today, the index has closed even higher with a 2.25% increase from yesterday’s close. If we had lost faith in our plan to stay the course at the worst point of yesterday’s volatility and sold, we would have missed out on a rebound of nearly 6.5% on the S&P 500.
While staying the course is broadly the right approach, we can utilize some tactical strategies such as portfolio rebalancing, tax-loss harvesting within taxable investment accounts, and potentially accelerating ROTH conversions in IRAs. These actions can be especially beneficial during larger market corrections. If you are a client, you likely had some trading in your accounts this week while we attempted to take some of these opportunities.
Overall, this is not a message about the news. This is a reminder about the resiliency of the markets. It is a reminder of the importance of calm even when there’s a lot of noise around us. We are also here for you. There is no doubt there is a lot going on. Our firm is here if you’d like to discuss any of this over a quick (or long) call. We’d be happy to talk about the markets or whatever else is on your mind!
P.S. For the record, we had a client this week ask us for an update on our favorite taco joint in Portland…you’ll have to listen to the audio version for this snippet.