What is going on in the stock market this year?
What is going on in the stock market this year?
If that’s a question you’ve asked yourself then read on…
In 2022, we’ve seen some big daily moves in the stock market and even big changes intraday. This is because we have three major separate events occurring in each of the three largest economies in the world. This has created uncertainty; markets don’t like uncertainty and are trying to gain footing and determine if the next move is up or further down.
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In the US, we have rapid inflation, and the federal reserve responding by raising interest rates. The market is unsure of how effective the raises will be in curbing inflation, but what we do know is that this means technology companies' expenses are increasing as the cost to borrow money to fuel their growth is increasing. Higher costs equal less profitability, so we’ve seen technology stocks sell off dramatically this year.
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The tragic war in Ukraine has created uncertainty for the entire European economy.
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China’s zero covid policy has once again disrupted global supply chains and created uncertainty about how this will affect their economy and economies around the world.
These events have combined to make this one of the worst starts to a year ever for both stocks and bonds.
The good news is this sort of market movement is normal. Many of us forget that double-digit declines during a year are normal. After only one 5% pullback all last year, markets have provided an unfriendly reminder in 2022. In fact, since 1980, the average correction each year is 14.0%, putting this year’s 13.0% correction in perspective. The chart below from First Trust does a great job illustrating intra-year market movement.
For example, look at the year 1980; it is a good reference point as the Federal Reserve was increasing interest rates to combat inflation that had reached 14%.
So, what can we do?
While we can’t predict when the markets will turn around, history tells us they will. In the meantime, in taxable accounts, we’ve been “tax loss harvesting” which means creating a tax loss by switching from one investment into a nearly identical investment on the same day.
This keeps our clients invested while creating a loss we can use to avoid future capital gains tax on profitable sales. Moreover, a married couple filing jointly can deduct up to $3,000 of capital losses from ordinary income per year.
In retirement accounts, we have been rebalancing frequently to buy low and adjust the investments to ensure our clients are well-positioned for the current market environment.
So, as we continue to traverse these volatile times, remember it’s time in the market not timing the market that determines long-term investment success. Please feel free to contact us with any questions.
Sincerely,
President & LPL Registered Principal
Terry Wealth Management
2710 Loker Avenue West
Suite 220
Carlsbad, CA 92010
Phone/Fax 760.858.2080
CA Insurance Lic. #0K26885
