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Another wild ride Thumbnail

Another wild ride

Markets bucked and sold off again. Should we be worried?

Not necessarily. These things happen pretty regularly, especially when headlines are negative.

In fact, you might recall that we kicked off 2022 with a big drop.2

So, let’s talk about what’s behind the latest wild market ride.

(Scroll to the end if you want to skip right to the reassurance.)

What led to the selloff?

Primarily, economic worries.1

Worries about new COVID-19 surges.

Worries about Ukraine.

Worries about the U.S. economy.

A report just came out showing the economy shrank by 1.4% in the first three months of 2022, surprising analysts who expected positive growth of 1.0%.3

Though a single quarter of negative growth isn't a recession, it's a sign that inflation, the Ukraine conflict, and the pandemic hangover are weighing on the economy.

Realistically, some form of a slowdown was probably inevitable, given the massive economic recovery of 2021.

And, the news isn't all gloom. 1) This is a preliminary report, so we'll see revisions later. 2) Economists still believe the economy has plenty of room to grow, particularly given the strength of the job market, so the economy could rebound. 3) Americans are continuing to spend.4

The economy is still strong, but it's showing cracks. We're watching closely.

You can see a theme: markets are being driven by worry and fear.

Is the selling done?

That's impossible to say.

Could we see a bigger correction or bear market?

Absolutely. That's very possible.

Corrections and pullbacks happen very frequently.

Here's a chart that shows intra-year dips in the S&P 500 alongside annual performance. (You've probably seen this chart before.)

Take a look at the red circles to see the market drops each year.

The big takeaway? In 14 of the last 22 years, markets have dropped at least 10%.5

We're dealing with a lot of uncertainty in 2022 and investors are feeling very cautious about the future.

However, that doesn't mean that we should hit the panic button and exit our strategies.

Knee-jerk reactions to market turbulence can be VERY costly.

I'm here. I'm watching the situation closely, and I'll reach out directly if we need to make some changes.

One opportunity which we are analyzing closely is the ability to deliver strategic tax-loss harvesting. 

With a market downturn, opportunities emerge for us to engage in tax-loss harvesting in your post-tax investment accounts. 

Tax loss harvesting is where we sell an investment that is down so we can realize the tax-loss today, but quickly replace that investment with another similar investment so that the composition of your overall portfolio is the same, all while navigating IRS wash sale rules. 

Many of you who were investment clients with Alison Wealth Management through 2020 realized the benefits of this tax-loss harvesting strategy when we realized a tax-loss for 2020 all while remaining fully invested and participating in the sharp V shaped recovery that ensued after the initial 20%-30% market downturn in March and April.

If you see trading in your portfolio, it is generally because we are capitalizing on this tax savings technique proactively behind the scenes. 

Questions? Concerns? Please reach out!


1 - https://www.cnbc.com/2022/04/25/stock-market-futures-open-to-close-news.html

2 - https://www.cnbc.com/2022/01/23/stock-market-futures-open-to-close-news.html

3 - https://www.cnbc.com/2022/04/28/us-q1-gdp-growth.html

4 - https://www.washingtonpost.com/business/2022/04/28/gdp-2022-q1-economy/

Archived PDF link

5 - https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf

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