Days or Decades

To say this year has been a challenging start to the equity markets is an understatement. The high mark occurred on the first trading day of the year for the S&P 500 and has been moving lower ever since. This has been due to rising expectations of an aggressive rate hiking policy from the Federal Reserve, and more recently the turmoil in the global energy markets because of the conflict happening in Eastern Europe.

The start of the year has been the worst since 2016, and that immediately brought to mind the good old days of six years ago. The market was going lower, ironically from oil prices hitting 12-year lows. In addition, the Federal Reserve had recently embarked on their campaign to tighten interest rates after nearly a decade of low rates coming out of the financial crisis in 2008-09. While this was happening, RK took advantage of a bad start to the year and increased equity exposure. We did this not by anticipating or predicting the market would turn around, but by being guided by our IPS and systematic rebalancing process. The activity of the last six years is captured below, with the notable events listed alongside the buying and selling activity (green/red bars).

Whether it is a bad start to the year or a great end of the year, our rebalancing process is designed to capture opportunity by buying stocks when they are on sale and then taking advantage of opportunities to trim positions and take gains. The eloquence of the process is found in its simplicity. It removes any emotion that we have around the events that are going on to affect stock prices, positively or negatively. If the economy looks crummy, and stocks are down, we buy. If the economy look great, and stocks are up, we sell. It focuses on maintaining our portfolio targets that lead to our clients’ long-term financial freedom.

It’s impossible to say whether this will be another year where equity markets end down, but there is some historical perspective to show that while the markets may be down, they might not be out. This has been demonstrated in the prior years where markets slumped at the beginning of the year, but ended the year higher or even positive (think 2020). The chart below illustrates this point and includes data from 2022.

It is easy to get caught up in the day-to-day happenings in the market, especially now when there is so much at stake given the ongoing crisis in Eastern Europe and the potential for a prolonged conflict. But as this continues to develop, RK is focused on our clients’ long-term goals and capturing any opportunities that may present themselves as the year moves forward.