Investors Were Seeing Trick or Treat in October
It was all treats no tricks for investors in October. Markets finally saw a healthy advance after struggling to find direction in September. Investors are wondering what this means for markets as we enter the typically strong season for stock market returns. As Bob Farrell once said “Bull markets are more fun than bear markets.” However, while we can certainly hope that the October market lows marked the bottom, it is likely we will see more volatility before we finally see an all clear signal that markets are ready to resume new highs. As we move into 2023, the markets still have hurdles to get past. Long term valuations remain deviated, earnings are weakening, profit margins continue to be squeezed, and stock prices could still move lower. As inflation numbers continue to run hot, the Federal Reserve has shown no signs of slowing down their rate hike schedule. In fact, on November 2nd Jerome Powell’s commentary left investors nervous by his continued hawkish tone. While the .75% rate increase was expected and priced in, markets were looking for a sign that we are nearing the end of the hikes. Powell’s comment that it is still premature to even discuss rate hike pauses caused a late day 2.5% selloff. Moral of the story is that investors should remain cautious until the economy shows signs of improvement. Cautious does not mean “go to cash” but this is probably not the time to take on excessive risk and it is more important than ever to make sure you have an investment strategy and that you are following it.
You may be wondering how to invest in the case we do head into a recession. Many indicators suggest we could be heading into a recession next year, but unfortunately, we won’t know for sure until after the fact. It’s typically too late to make significant investment changes by that point. What we can do is heed the warnings we see and take any necessary pre-emptive actions as a result. That said, the most important thing isn’t necessarily what we should do but rather what should we avoid doing. During market downturns, allowing our emotions to guide decision making rarely ends in the way we hope. However, an investor may want to consider buying high quality companies that can be held. High quality companies with solid earnings are likely not going anywhere, even if they are undervalued in the short term. Equally important is to avoid selling quality companies just because their stock prices are down. Of course, it is not always easy to determine whether a company is truly a quality company with favorable fundamentals. This is why your investment strategy is vital.
I recently read The Motley Fool’s current take on how to invest during recessionary periods and I thought it was worth sharing. “The bottom line is that, during recessions, it’s important to stay the course. It becomes a bit more important to focus on top-quality companies in turbulent times, but, for the most part, you should approach investing in a recession in the same manner you would approach investing any other time. Buy high-quality companies or funds and hold on to them for as long as they stay that way.” Of course, this is often easier said then done. You must have a solid method for evaluating stocks ongoing as fundamentals can change. If your portfolio allocations are no longer performing their desired task, you may need to remove them. A solid investment strategy is important as it removes the emotions from the decision. A fiduciary investment advisor may be able to help you determine appropriate investment allocations while also considering your time horizon and individual goals. As always if you have any questions about your current portfolio or investment strategy, we are always happy to help. Be well and Happy Thanksgiving!
ASHLEY ROSSER, PRESIDENT
Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.
Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.