What goes up must come down
Spinning Wheel got to go 'round
Talkin' 'bout your troubles
It's a cryin' sin
Ride a painted pony
Let the Spinning Wheel spin
The lyrics from the Blood, Sweat & Tears song Spinning Wheel indicate a metaphor for the cycles we all go through. Such is the experience we have seen in the capital markets recently. Only a short week ago it appeared that all was lost and there was no hope, but this week the market delivered a rebound!
The chart below shows the cumulative value of the S&P 500 (IVV, the blue line) and its weekly returns (the orange bars). As you can see, The S&P 500 has been in a volatile downward path since the beginning of the year. In fact, before this past week, over the past 24 weeks the S&P 500 has had negative weekly returns 17 times and 10 of the past 11 weeks! This week, however, we saw a nice +6.6% rebound. The S&P 500 is still down -17.3% YTD, but the recovery did offer a pause in the negative market psychology.
Most of the recent market commentaries have bemoaned the troubling economic situation we are in; but it will not last forever! When you have a long time horizon, this moment in time is simply a blip. If you are employed, have a long time horizon, and have sufficient income/net worth to support your desired lifestyle, it is in your best interest to stay invested. The trouble with getting out of the market now is that it will be harder to recover lost value when the market turns up again. Also, we will then need to agree on the correct re-entry point (very difficult!) As said by my peer in the industry:
Scott Clemons, Chief Investment Strategist, Brown Brothers Harriman
“We’re trying hard to keep nervous investors in the market, reminding them that no one rings a bell at the end of a bear market, and that the recovery can be both swift and counterintuitive. In fact, the average return of the S&P 500 from the date of a bear market entry (not the trough, but the 20% trigger) is 23%. You don’t want to miss that.
However, for nervous investors, we do point to the benefit that dividends offer, not just for cash flow, but as a market of a company with plentiful free cash flow and a strong balance sheet. Quality wins over time!”
The prior week was the worst we have seen this year and this week was tied for the best (with May 27, 2022)! All D&A client portfolios are made up of many core holdings of high-quality investments and are well-positioned to recover when the market recovers.