Two Steps Back, One Step Forward: Market Commentary from Cabana’s CEO – June 24, 2022

2 years ago

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My apologies to all for our commentary being tardy this week. We have had several advisor webinars to present and have been focused on that. 

Cyclical bull markets typically last longer than bear markets and they are characterized by the old saying of two steps forward and one step back. Another common characteristic is that the steps themselves are fairly small and slow. This gradual upward shuffle is what results in the broad indices moving up over time. Bear markets on the other hand have a tendency to do the opposite. They take two steps back for every one step forward. Additionally, those steps are often large and fast. As opposed to a shuffle it is more like a long jump. Both of these qualities make for difficult investing, but it is the latter that makes bear markets especially dangerous. The rapid moves in either direction play on our basic human emotions of fear and greed. The steep and often rapid declines kick in the fear part and the quick and steep advances kick in the greed part. All this can and often does result in whipsaws and emotional pain for investors.  

This year, while extreme in many ways (think interest rates), has thus far played out in typical bear market fashion. Beginning in January with a big two step drop, we have witnessed several big one step rallies back over a period of a few short days or weeks. Each has ended far short of the previous high and a new and steep two step drop has ensued resulting in lower lows for all the major indices. This month we are again seeing this play out with a big drop to lower lows during the early part of the month on the back of continuing inflation and higher interest rates. The S&P 500 fell 10% in five trading days to reach a new low of -24% for the year. The Nasdaq ended up down more than 30%. This week, we are seeing evidence of the one step forward with markets trying to recover some of those losses. As of this writing we’ve experienced a recovery of almost 50%. 

I am frequently asked when all this will end, and a bull market will begin. I have no idea, but I can tell you what I am watching for. First, interest rates need to moderate. Stocks have a very tough time gaining much traction when interest rates are rising at the historic pace they have this year. Second, energy prices (and other commodities) need to drop to the tune of 20 or 30%. We have begun to see evidence of both of these conditions being met. Finally, we need to see a couple of two steps forward and only one step back by the S&P 500 – and I would like it to be a shuffle and not a long jump! 


January 17, 2024

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