Investments

Navigating the Latest Market Fluctuations

By Dean Barber

January 28, 2022

Navigating the Latest Market Fluctuations


Key Points – Navigating the Latest Market Fluctuations

  • What to Make of These Market Fluctuations?
  • Looking Back at Other Recent Periods of Market Fluctuations
  • What Is the Federal Reserve Doing?
  • Going Back to Economic Fundamentals and Rebalancing
  • 8-minute read | 14 minutes to watch

The Federal Reserve is walking an absolute tight rope. Markets are going crazy. We’ve seen one of the most volatile months since the beginning of the COVID-19 pandemic. Bud Kasper, Matt Kasper, and Jason Newcomer join Dean Barber discuss the latest on the wild market fluctuations and what you need to know moving forward.

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Navigating the Latest Market Fluctuations

Dean Barber: Hello everybody, I’m Dean Barber. I’m excited to be joined by Bud Kasper, Matt Kasper, and Jason Newcomer to talk about what is going on with the market fluctuations in January.

A Crazy Start to 2022

It has been a wild ride. We’ve seen the Dow Jones Industrial Average go from almost -1,100 points and then back to a positive 100 points in one day. That same day, the NASDAQ was down more than 4.5% and wound up positive by 0.63%.

If you’ve ever been bungee jumping, I guarantee that’s how everyone who has money in the markets feels with these market fluctuations. I want to go over some key stats from the past month before going into a roundtable discussion with Bud, Matt, and Jason.

Analyzing Some Key Stats from January

Let’s look at some data from Chaikin Analytics, starting with the S&P 500. Right now, 96 of the 500 stocks in the S&P 500 are in bearish territory. They look to remain in bearish territory for the near future. Only 55 of the stocks in the S&P 500 are still showing a bullish rating, while the balance of those are neutral. That puts the overall S&P 500 in a neutral position.

When we look at the NASDAQ, we have a similar story. We have 23 of the NASDAQ 100 stocks showing a bearish rating and only six showing a bullish rating. The balance is neutral, putting the NASDAQ in a neutral position.

What to Make of These Market Fluctuations?

So, we don’t have a total index with a bearish overall showing right now, but we are seeing signs of increased market fluctuations. I mentioned in the December 2021 Monthly Economic Update that we anticipated more volatility this year, and we are seeing it. Starting with Jason, what do you make of the market fluctuations right now? What conversations are you having with clients about it?

Jason Newcomer: The one thing that strikes me and probably all of us is the speed at which things are accelerating. It seems like things have happened so quickly in the last few years. A 10% fallback in the market used to take a month or two to play out, but now it happens in a matter of days.

Even though things have accelerated, it’s still important to provide context. We always look to the past to help provide some of that context. Just don’t blink because things are moving that quickly. At one point this week, the S&P 500 was down more than 10% from its previous all-time high. Is that normal? I would argue that it is. Over the last 90 years, most years have had a 10% fallback somewhere in that calendar year.

What we’re seeing is normal, although the speed is completely different. It’s important to have that context from a historical perspective so that emotions don’t run crazy and take over. You don’t want to lose sight of what is important.

Dean Barber: The important thing is that people don’t have the money that they want to spend over the next year or two in stocks right now anyway. They should always a fair amount of money in safe positions so they don’t have to worry about these short-term market fluctuations.

Looking Back at Other Recent Periods of Market Fluctuations

Matt mentioned something this week during our brainstorming session as we were talking about these market fluctuations and the panicking and fear that has come along with it. He likened it to the beginning of the COVID-19 pandemic that began in late February 2020.

Matt Kasper: We’re in the third significant fallback since 2018. One was in the fourth quarter of 2018. Then, of course, the onset of the COVID-19 crisis. Now, we’re in this most urgent event that’s been taking place recently. The question is, “What should we be doing?” It’s very easy for us to run into that fear factor with seeing these excessive drops at the quick pace that Jason was just identifying.

We need to get back to the basics. That includes doing the appropriate rebalancing, where we’re making sure covering future distributions and at the same time sustaining the appropriate risk level that’s going to keep us healthy in the long-term inside of retirement. I think that’s very critical for us to not lose sight of what we’re trying to accomplish long-term even though these jolts in the market feel very uncomfortable.

Like Jason was saying, we need to get used to having these corrections in place. About every other year, we’re going to go through these types of experiences. And about every six to seven years, we’re going to go through a true bear market. I think that’s what we all get concerned about with when the next bear market is going to be.

What Is the Federal Reserve Doing?

Dean Barber: Thanks, Matt. Moving on to Bud. I like to call Bud the original CERTIFIED FINANCIAL PLANNER™ professional. From an economic perspective, what’s your take on what is causing all these market fluctuations right now?

Bud Kasper: It’s the Fed. It really does come down to what the Federal Reserve is doing. The issue at hand is whether they’re going to be able to raise the rates without upsetting the economy and the market reacting negatively on top of that.

Ships and Chips

I like Dean’s bungee jumping analogy that he made earlier. It most certainly has felt that way. Recently, I had the opportunity to talk to a manager of one of the largest mutual funds that is out there just to get his thoughts to what is going on. One of the things he referenced were ships and chips.

He was talking about the clogged economy that’s resulting from not getting goods and services out to the cities so they’re available to the people. And then the chips have become so scarce that it’s crippling some of these companies and their abilities to produce their products. That’s going to be a negative impact until we finally get that cleared up.

The administration better get its act together because it’s not providing these companies the opportunity to make money when the fundamentals associated with getting goods and services to the people at large are in place.

Fundamentals and Rebalancing

Dean Barber: Jason, I want to go back to you. He made a bold move in 2020 at the end of March when the markets had a pullback. He said it was time to rebalance and sell out of some of those fixed income assets that did very well in March and buy some equities that were down by 35%.

People were saying Jason was crazy because the markets were down and they didn’t know what was going to happen with COVID. He was just using fundamentals. I don’t think people understand that when we’re in these times, we don’t think on an emotional level. We try to think from a logical level, research how things have played out in the past, and use that as our guide for how we treat things moving forward.

Jason Newcomer: Let’s flash back to March 2020. It was the middle of the month and the market had fallen by 20%. That’s when we did our initial rebalance. I was sitting there thinking how great of an opportunity it was to rebalance. At some point, the markets were going to recover and we were going to look like all-stars for rebalancing.

In the next five days, the markets fell another 11-12%. I was like, oh my gosh. That happened a lot quicker than we thought it would. But we did another rebalance. We did two rebalances in March 2020. In my wildest dreams, I wouldn’t have anticipated how quickly the recovery came. Even my most optimistic outlook had it taking a year or so to recover. But within a year, things had bounced back.

So while the rate at which things are changing are unprecedented, I think the fundamentals of investing, rebalancing, and having a solid diversified portfolio strategy remain unchanged.

Still Projecting a Slowing Growth Period

Dean Barber: I agree. If you think about where we’re at, we’re seeing good fundamentals from an economic perspective. We have low unemployment. We could say that’s from low participation in the workforce, but the reality is that if you want to find a job, there are plenty of them to be had. There are more jobs to be had than people looking to get hired at this point.

That’s causing some wage inflation pressures, but corporate earnings are remaining extremely strong. We’re looking for a slowing growth economy this year. As opposed to growth just taking off, we think that growth is still going to be there, but it’s going to slow as we go through 2022 and i2023.

If we can just remove the Fed from that equation, we know that the economy is slowing. We can look forward and forecast that the economy is going to grow at a slower pace in 2022 than it did in 2021. We can look forward and see that the economy is going to grow at an even slower pace in 2023.

Three Strikes for Federal Reserve Chairman Jerome Powell?

These market fluctuations that are happening right now could very well be a reaction from the market saying that Jerome Powell got it wrong. This inflation isn’t transitory. That’s strike one for Powell. He was wrong by not raising rates fast enough to get ahead of this crazy inflationary period. That’s strike two for Powell.

The market is wondering if he’s going to get strike three by being too aggressive and sending the economy into a recession. Let’s hope that he can do it right and send us into smooth, soft landing with slowing inflation, yet allowing for the economy to continue growing at a healthy pace.

Final Thoughts on These Market Fluctuations

Matt, what are your last thoughts on what you see for the economy and what I just said?

Matt Kasper: I couldn’t agree more. If the Fed starts to increase these rates, can our corporations sustain these higher wages and supply costs, and ultimately continue to experience some growth inside of what they’re projecting for their own returns? This rising rate environment can create some headwinds for them. If we start to see economic growth continue to wane, that could become a headwind to the market itself.

We want to be cautious. I’m with Dean regarding what Powell has against him. We’re looking and hoping for proper guidance from the Fed. The only thing I can say is if the Fed starts to increase rates and we start to see slowing economic growth, at least we would anticipate them to start reducing those rates at the same time with what’s going on.

Dean Barber: Bud, what are your final thoughts?

Bud Kasper: I believe the Fed is behind the eight ball. I said last summer that they better start raising rates by the end of the year. That didn’t happen. I hate it when the Fed needs to start playing catch up because that suggests that they might raise rates at a faster pace or do more than just a quarter of a point. They won’t do that because they don’t want to look like extremists.

I think we’ll see three, possibly four, rate increases. But the Federal Reserve isn’t going to be in a hurry. They’re going to measure their way into this and look at how the economy is reacting. They’ve seen this before, so they have the experience to guide us where we need to go. Of course, the markets are going to act appropriately.

Reach Out to Us with Questions About the Latest Market Fluctuations – H2

Dean Barber: Bud, thank you. Thanks to everyone from joining us for the Monthly Economic Update. I’m Dean Barber, along with Matt Kasper, Bud Kasper, and Jason Newcomer. Even if you aren’t a client of Barber Financial Group, you can reach out to us with any questions for our financial advisors by scheduling a 20-minute ask anything session or a complimentary consultation. We can meet with you during a phone call, virtual meeting, or in-person meeting. We’ll talk to you all later. Everybody stay healthy, stay safe. We’ll be back with you at the end of February.


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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.