First Things First
September 13, 2022 was the worst day of the year for the overall markets. This was caused by news that inflation was higher than expected and concerns that the Federal Reserve will continue to raise rates. Then on the very next day, on September 14th, news was released indicating wholesale prices had decreased.
We are pleased to report that we have not received any panicked calls or messages from clients this week regarding the markets as our clients understand this is only a short-term correction and a normal part of the investment process.
Many commodities that increased during the pandemic have dropped considerably during the last few months, another indication that inflation has peaked. For example, over the last six months, prices for Lumber is down 60%, Copper is down 18%, and Steel is down 20%. The August Consumer Price Index (CPI) was up 8.3% versus the expected rate of 8% but Inflation peaked in June at 9.1% and has decreased in both July (8.5%) and August (8.3%). So inflation is heading in the right direction by declining.
With significant increases expected soon in the base interest rate from the Fed, expect to see decreases in the price of homes in some areas by as much as 30%. This needs to happen to get real estate prices in line with where they should be.
The NASDAQ and S&P 500 entered into Bear Market territory in May and June which is a drop of at least 20% from previous highs. The average Bear Market last around 13 months so we could see another 9 months of this. Nobody likes Bear Markets but they are a natural part of the market cycle. As of September 15th, 2022, the NASDAQ is down 27.11% and the S&P 500 is down 18.15%. None of our portfolios are down this much.
Our income portfolios are built to withstand 5 to 6 years of a Bear Market (which has never happened in history) assuming a maximum income withdrawal of 5% per year which is inline with standard recommendations for income withdrawals. These include Ultra Conservative, Conservative, and Moderate portfolios as withdrawals are taken from cash and fixed income holdings first. Including the Great Depression, the longest Bear Market in history (the Dot Com Bubble) lasted 2.5 years1.
We have bought back into some equities while many have been “on sale” but you will not see the benefits of these adjustments until perhaps the middle of next year or when we return to a Bull Market. This strategy is intended to enhance overall long-term returns but NOT in the short-term. Patience is key. Over the past 73 years, the shortest bear market was three (3) months and the longest was 25 months2. The wise thing is to not panic and stay disciplined during times like this.
If you would like more information, please read our Bear Market Newsletter articles by clicking the following link. https://christianfinancialadvisors.com/tag/2022-may/
As always, rest assured we are consistently monitoring events, the markets, and all our portfolios hourly, daily, and many times into the late evenings as well as very early in the mornings for your benefit as our clients.
As a Fiduciary-based firm, we act as your trusted financial advocate for you. We are here to serve you, not the other way around.
CEO, Christian Financial Advisors®
CCO, Christian Financial Advisors®