Q: What do you think is vexing investors most right now?
Investors are rightfully confused. For starters, expectations for companies have changed. There used to be a stock market that wanted growth companies. Now, the market wants profitable companies. Technology companies had been penalized the most, because they were always instructed to grow; it was never about whether they were profitable.
Profits are harder to come by, and that’s going to shrink the valuations and multiples on these companies. We’re seeing a market coming back to par based on these new expectations.
Couple that with rising inflation rates, (the Fed said last week that it’s going to be hard to get a soft landing, which is code for we’re expecting a protracted recession) and we have some economic suffering ahead. Getting inflation down to 2% is going to be tough.
Then, let’s look at the market as a whole right now. In a market that goes up year after year, we used to hear the expression “TINA” (there is no alternative—to investing in the stock market). But as interest rates rose, things changed. Now, you could park money in a savings account and it might end up being better! Not long ago, you couldn’t get a savings account to pay 1/10th of a percent. Now you can get close to 4% on your money without the stock market risk. There are numerous and growing alternatives to investing in the stock market nowadays. It’s hard for investors to know what is best in their particular situation.
So even though it seems like things have been bad right now, we still have a Dow that is above 32,000 and the Nasdaq above 10,000. In a market that went up for 12 years straight, it’s not ridiculous to think we could fall another 30% and go back to our 2020 lows. In short, I think there’s more downside than upside in the near future.
Q: How should investors brace for the near term?
A: It’s a good time to be especially diversified. The biggest risk we’re seeing is in individual names. When you see activity like Netflix going from 700 to 273, Meta going from 353 to 90, Amazon going from 188 to below 90, and Disney from 179 to 101, there’s just too much risk in individual names.
Mutual funds are a good way to diversify broadly and cost effectively. Right now, few people can name 5 mutual fund managers. That will change fast, as we get deeper into a span when people will recognize fund managers who demonstrate the best all-weather strategies. Fund managers able to navigate through the environment we’re in are going to see huge inflows, and they’ll be rockstars.
Q: Any words for those who still want to dip their toes in?
A: For anyone, but especially investors losing sleep right now, I think “light is right.” There’s no need to try to time the market’s bottom. You can ease in and just expect the unexpected. There simply aren’t a lot of near-term catalysts capable of moving the markets up right now so, buyer beware.
Q: What would you say to people holding cash on the sidelines?
A: Congrats! Hold it there. Or, park it in T-bills. You’re looking at 4% and no risk!
TIFIN Wealth operates under multiple RIA firms and a Broker Dealer. Please see the individual solution webpages at tifinwealth.com for relevant disclosures. TIFIN Clout is not a registered investment adviser and does not offer investment advisory services.