Page 107 - December2022

WHAT ABOUT PERFORMANCE?
I do have some good news to share. Historically, the worst performing year in a presidential 4-year term is the second year, or the midterm election year. Why is that? I personally think it’s because of the uncertainty investors have and the destructive messages from congressional candidates about their opponents. However,
once the election is over and investors can digest new ideas, it has historically been very good for the market. As we approach the third year in President Biden’s term, investors can be optimistic in knowing that it tends to be the best performing year. That should be nice to know after the
year the market has had. It has certainly been frustrating as an investor to see stock prices and business values slipping. However, these market downturns don’t last forever. As an advisor, I’m not concerned about the market over the long- term. Markets will recover. The chart below will provide a visual to this point I’m making. This chart is telling us a couple things. First, that the max draw down in the S&P 500 (the 500 largest
U.S. based companies) during a midterm election year is an average of -15.7%. The S&P is down slightly more than that average in 2022 as I write this. Now let’s get to the good news by referring to the blue bars. The average return in the S&P 500 approximately one year after the midterm elections has historically been an average of 19%. This is part of the reason for my optimism going into next year. The best thing we can do is not only look at historical averages but have a financial plan in place during times like this. That way, you can refer to your plan and know that you already factored in the occasional down market and recession. This foresight can provide peace of mind.
TALKS OF A RECESSION
I know, you’re probably thinking, “Will there be a recession next year? The pundits
are telling us things could get really bad.” I’m hearing this quite often in recent days. Here’s my response: the stock market is a forward pricing instrument. What does that mean? It means
that the stock market knows we are going into
FINANCIAL PLANNING
a recession. It prices things in several months in advance. It has been this way for a long time. It sounds counterintuitive, but I think bad news is good news at this point in time. Bad economic news generally means the federal reserve won’t have to raise rates as high as previously thought – so this bad news in current data, provides good news in terms of market reaction. The signs of a recession have been here for the majority of the year. I would say real estate is the next shoe to drop. There’s been a slight correction there, but
I anticipate 10-15% more of a drop in prices. Recessions are normal and they happen every few years. Assets very rarely increase in value every year. Prices need to correct every once
in a while, especially when they have gotten ahead of themselves such as during periods of speculation. Just remember, as an investor you own shares of actual businesses. They are not dependent on the results of elections. Keep your focus on the long-term and stick with proven strategies that have helped millions of investors build significant wealth.
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