The Music of the Markets

February 04, 2022

“The market likes to dance to music that only it can hear.” – Jeffrey E. Daniher

 

On Monday of this week, the closing day of January, I woke with the jubilation of my home team Bengals heading to the Super Bowl.  The last time I could say that was when I was in high school, and now I’m only days from turning 50.  All was good with the world.

 

And then I opened up my Bloomberg app to see what the stock market futures looked like…  Yuck!

 

My mood suddenly shifted as I walked downstairs to my office, with the hope of a solid day in the market to close the month suddenly looking like it wouldn’t come to pass.  And then it did.  The S&P 500 rose 1.9% and the tech heavy NASDAQ rose nearly 3.5%.  Late in the day, Jeff and I were texting with each other when he uttered the quote above, and I’ve had music lyrics in my head ever since.  As I cooked dinner, I went back to those high school days with the following.

 

“It’s just another manic Monday.  I wish it was Sunday.  ‘Cause that’s my fun day.  My I don’t have to run day.  It’s just another manic Monday.” – The Bangles

 

January was obviously a very rough month in the markets, as the market focused on multiple potential headwinds:  Federal Reserve policy, Russia/Ukraine tensions, inflation concerns, and more.  The S&P fell 5.3% and the NASDAQ retreated by almost 9%.  While this is never something people want to experience, I found myself looking at returns over the last six months, one year, two years and the results are very strong.

 

“You have to learn to pace yourself.  Pressure.  You’re just like everybody else.  Pressure.” – Billy Joel

 

It’s said that the behavioral finance studies have shown that the pain of loss is four times greater than the joy derived from gain.  Perhaps this is how you have been feeling over this last month, where double digit gains from the past few years pulled back a bit on the change in market sentiment.  Fundamentals were largely ignored, and fear took over.  Chatter on the news talked of corrections, bear markets, and the potential of a war across the pond.  And people start to question whether they want to remain invested when things seem so bleak.

 

“It’s the terror of knowing what the world is about.  Watching some good friends screaming, Let Me Out!” – David Bowie & Queen

 

The key in moments like this is to remember the following.  It’s not about timing the market; its about time IN the market.  This phrase has been uttered so many times that its origin isn’t really known, but the wisdom of the comment rings true.  With volatility returning in a significant way, there is no reasonable strategy for getting out and getting back into the market.  The reasonable strategy is remaining well diversified, rebalancing the portfolio back to target asset allocations, and maintaining adequate cash reserves for upcoming expense needs.  That’s how you both make – and maintain – wealth.  And you need to focus on the long haul.  Recency Bias is another behavioral finance truth where people tend to project the most recent situation into the future, and assume that is going to be the long-term reality.  They often do so forgetting the positive market environment that was present just a short time back.

 

“Yesterday, all my troubles seemed so far away.  Not it looks as though they’re here to stay.  Oh, I believe in yesterday.” – The Beatles

 

The market has shown this week that fundamentals are again in focus, with earnings season upon us and an exceptionally strong Jobs Report today.  Stocks that have missed their earnings targets or guidance are getting hit hard, and stocks that surprise on the upside are getting handsomely rewarded.  Volatility is our norm again, with intra-day swings of multiple percentage points on the indices.  While disconcerting, remember that investing is a long-term proposition that gets muddied by these short-term moves.  Keep the focus that we are investing for the long haul, and that requires discipline and composure when the inevitable bumps arise.

 

“… Take it slow, and it’ll work itself out fine.  All we need is just a little patience.” – Guns N’ Roses

 

We hope you have a great weekend.  Should you have any questions at all, don’t hesitate to let us know.