August 2022 Market Update
- Federico Donadio
- Aug 1, 2022
- 5 min read
AUGUST 2022 MARKET OUTLOOK
Have you ever noticed that we all have an acute sense of the obvious?
We tend to like stating things like, ‘Wow, it’s cold outside.” Or “Oh, my, it’s raining!”
Sometimes as we listen to all of the debate about we are in a recession, no, we are not in a recession, the Fed raised rates today or whatever today’s news is – I ask . . . So what?!?
What matters is what will happen, not what is happening right now, yet that is where most people focus. I am teaching my daughter (the last one of six I get to teach.) how to drive, and we talk about keeping her focus further out because if she doesn’t, she is constantly correcting and going way over to one side of the lane or the other. Investing can be a lot like that. Keep your focus out in front. Sure, glance in the rearview mirror, be aware of what is happening around you, but keep your focus far forward!
The long-awaited recession is here . . . . . so what?
The three most important things for investors to be aware of in today’s markets
What are the choices?
The Long Awaited “Recession is here . . . . so what?
The most widely accepted definition of a “recession” is when the economy experiences two consecutive quarters of a decline in GDP or Gross Domestic Product.
These two consecutive declines have now officially happened. Still, we will have to wait for several more months before the folks at the NABER or National Bureau of Economic Research “officially” declare that we are in a recession.
This means nothing different from yesterday for investors, consumers, or job seekers.
The conditions are the same. The investor and those on a fixed income (retirees) need to continue to look far into the future. The consumer has no choice but to prioritize expenditures, and unlike in many other recessions, today’s job seekers still have many flexible options. Possibly the most significant issue comes from those seeking to hire who must now be willing to be more flexible and think outside of their traditional practices to find the expertise they need.
The Three Most Important issues facing forward-looking investors today:
Investing in today’s marketplace is much different than 10 or 20 years ago.
Like any other marketplace, innovation has happened in the investing space. Previous portfolio management methods no longer work as well as they once did. Ironically in the investing world that generally rewards innovation of other industries and companies, Wall Street tends to be slow to adopt new ways of doing things, particularly when sharing those things with retail investors.
Today’s investor needs to look far into the future rather than listening to and watching what the federal government or the Federal Open Market Committee did yesterday or will do next quarter. Instead, the critical analysis looks further into what recent events and actions will likely cause twelve to 24 months or even further into the future. In my opinion, critical decisions face today’s investors.
Due to increasing rates and the relative stability of the U.S. dollar, the dollar has gained strength worldwide faster than at any time in history.
The stronger dollar means U.S. goods are getting more expensive due to inflation and more costly again due to a more expensive dollar for consumers in other countries.
Future food crises will likely continue to increase food prices, forcing middle and lower-class consumers to prioritize what they buy and when.
Natural gas and potash are crucial ingredients in fertilizer production. The war in Ukraine constrains supplies of both.
Given what I mentioned in items one and two, inflation will likely persist as the traditional methods of controlling inflation do not work as well in the current market environment. As such, investors driven into significant cash positions as a haven from the bear market, may begin to notice the not often talked about unintended consequences of that decision. ‘Purchasing power degradation’ In other words, that cash position has arguably declined in terms of what it will buy at a double-digit pace during the past twelve months.
What are the Choices?
Wait it out; historically, many will tell you that this tends to work when you have time on your side. My caution here is that with the continued innovations happening across multiple sectors of the market and economy, simply sticking to an outdated strategy may not yield the best results for you.
Buy dividend-paying stocks and bonds – This is the traditional wisdom, and as part of your strategy, it may be the right move for you. Understanding which of those dividends are the right kind of dividends, sustainable dividends, and will not result in headaches at tax time is critical.
Make strategic and tactical adjustments based on where the economy and markets are going rather than where they have been. Rather than complain about the rising prices and other things we don’t like, let’s ask ourselves the question; what industries are likely to benefit most in our current reality? Oddly enough, when you start digging, you will find deflationary innovation in many market areas. Further, as consumers worldwide prioritize what they purchase, what do companies stand to benefit most?
Most important of all, do not abandon your well-thought-out financial plans. Make prudent adjustments to those goals and objectives but remember why you made those plans. Remember, you are building your life, not your portfolio. To accomplish the goal of building your life as you define it depends significantly on how you react or not to market environments like the one we are in now.
If you are wondering how to adjust to an environment like the one we are in now. Please do not hesitate to reach out to us through social media, our website, a direct call, or email directly to me at jbrowning@advocacyinvesting.com
“Define your outcome and allow a skillful artisan to help create it for you.”
Nothing in this communication should be construed as personal advice, and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Guardian Rock™ LLC and its affiliates are fiduciary investment advisors. Please consult Guardian Rock™ or another experienced investment advisor before making investment decisions and trying to implement the strategies and tactics we discuss in any of our publications.
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