This is a Test
When you hear that obnoxious beeping sound on your radio or television, you know you are experiencing a test of the Emergency Broadcast System. These tests seem to occur at critical moments during ball games, when you’re driving in the car, or when you are intently watching a movie. They can be jarring! The rattling associated with the test gets your attention fast - that is the point. Buzz, Buzz, Buzz: investors, we are experiencing a test from the stock market.
Since the January 3rd peak on the S&P 500, the market has experienced a significant downdraft. The Dow has fallen the least (-7.6%), followed by the S&P 500 (-10.2%), and NASDAQ has fallen a whopping -17.6%. Coupled with the declines, interest rates have risen – the ten year U.S. government bond has gone from a 1.49% yield to a 1.81% yield, hurting the value of bond portfolios. All of these figures are as of the close on 1/27/2022. As of yesterday, only one sector of the market had increased in value, oil stocks. Nobody wanted oil stocks for the last few years, but they are glad they own them now….carbon footprint or not.
Meanwhile, we have an economy that continues to show improvement. Corporate earnings have been acceptable, at least thus far. Employment and wages are rising, boosting the balance sheets of individuals to levels we have not seen in a long time. The Federal Reserve has announced it will gradually be raising rates, but we are still in a lower interest rate environment. Yes, this is a test.
Markets don’t go straight up. You know that. January has reminded us of this fact. The market whipsaw witnessed on some days this month reminds me of the days in March 2020 when the pandemic was the great unknown. In fact, market volatility and pains are reminiscent of early 2009 at the end of the Great Recession. Market declines in the face of a decent economic environment are testing investors’ true intentions.
Are you a stock investor or a stock renter? Ae you thinking long term, or only interested in quick profits? Markets always teach, what is the lesson being taught right now? Yes, this is a test.
As a student of the market, I know we must watch, listen, think, and stay focused on our goals in times like these. Rattled investors make bad decisions. To paraphrase Rudyard Kipling, “if you can keep your head when others around you are losing theirs…”
Please feel free to reach out if you have questions or would simply like to discuss your situation. We will pass this test together.
- Ralph McDevitt
January 28, 2022
Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James.
This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation to buy, sell or hold a specific security. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Diversification and asset allocation do not ensure a profit or protect against a loss.
The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ Composite Index (NASDAQ) is a market capitalization weighted index representing more than 3,000 securities.
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
