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Private Wealth Insights – August 4, 2022

Brett Halley*

Greetings –

Ah, the Dog Days of Summer. The saying is very familiar, but I was today days old (20,525) when I learned about it! The saying was first coined by ancient Greeks due to the Dog Star (Sirius) rising with the sun, a phenomenon that officially lasts from July 3rd to August 11th in our hemisphere.

Now that we have the context of that saying cleared up, let’s put the US stock market into context as well! I love charts like the one below for its ability to do just that… the current correction is BLUE, the Financial Crisis is Orange (or Peach if you grew up with the large box of crayons) and the DOTCOM correction is in BLACK.

Notes & Thoughts on the above chart 😊

They all look the same as they trend down; it is not a straight line down, there are many bounces along the way, but the bounce does not “break out” of the downward trend. Of course, every correction period does eventually end, and the down trend is broken… the unknown is when!
As of today:
- the S&P 500 is down 13% for the year (it would need to rally roughly 16% to get back to its all-time high reached on January 3rd of this year)
- the S&P 500 is still up almost 20% from the pre-pandemic market top (February 2020)
My view is that the macro environment (Federal Reserve raising rates, higher inflation, global growth slowing) is such that it would be difficult for the market to set a new all-time high. If you agree, then the S&P 500 has less than 16% upside and perhaps 20% or more downside risk. In other words, we have rallied into “No Man’s Land”. Another saying I should look up!
That does not mean sell all stocks and just hold cash! It does mean that this is a market where the emphasis is on managing risk, generating income and being tax-efficient.
Our view is that average annual returns for diversified investment portfolios will likely be positive over the 3-5 years, but likely at lower annualized returns than we have experienced over the last decade.

More reading!

A great summary of the causes of inflation this time:

Who Is to Blame for Inflation, 1-15 – The Big Picture (ritholtz.com)

Things to watch over the next couple of years:

Amazon will see you now: reading between the lines of the One Medical acquisition | BioPharma Dive

Enjoy the remainder of your summer and perhaps enjoy the Dog Star rising with the sun at least once in the next few days!

Brett

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