Gill Capital Partners Mid-May 2022 Update

While we certainly don’t want to inundate your inbox, we do like to send out more frequent communications during times of increased economic news and market volatility. We know that market movements like we have seen as of late can be unsettling and stressful, and our goal is to provide you with pertinent information and perspective to help you navigate the ups and downs of this market.  

Market Corrections Are Normal

While it never feels good, volatility and market corrections are quite normal. In fact, and as shown in the chart below, over the past 42 years, we have seen an average correction of 14% per year. More importantly, despite these corrections, the market has generated positive returns in 32 out of 42 years.

As of this writing, the S&P 500 is down 14% year-to-date in 2022. We understand how hard it is to watch the markets fall; however, history has shown us that investors who chose to stay the course were rewarded for their patience.

Bitcoin

One look at the carnage in the crypto currency market may make you feel slightly better; crypto currencies, including Bitcoin, have seen far greater losses than stock indices. In fact, as of this writing, the price of Bitcoin has fallen nearly 60% since it’s high in November of last year. It appears that the significant deleveraging occurring in the crypto market is adding to the overall market volatility as investors seek out assets that create cash flow and shun more speculative ones.

Inflation

We received another monthly read on inflation this week. April’s CPI report showed a slight decline in inflation from 8.5% to 8.3% on a year-over-year basis; on a monthly basis, the CPI rose 0.3% in April as compared to a 1.2% increase in March. The report presented a bit of a mixed picture, but economists remain hopeful that prices will continue to moderate in the second half of 2022.

Investor Sentiment

If you are looking for a positive takeaway, consumer and investor sentiment are awful. Investors are fearful, and as strange as it may sound, that has historically proven to be a good thing for markets, or at least coincided with turning points and market bottoms. Are we at a market bottom? We don’t know, but we feel we are likely getting close. The chart below represents the “Consumer Sentiment Index” and shows that the last eight times this index reached a trough, the market returned nearly 25% over the following twelve months. 

Again, we do not know if this index has bottomed, but it is certainly in the range of past market bottoms. Furthermore, the “VIX,” or so-called “Fear Index,” which measures volatility, is also extremely elevated, and current levels are commensurate with past correction bottoms. Neither of these data points can definitively tell us this is the bottom, but we are certainly in the ballpark of past corrections.

We know the volatility is heartburn inducing; our bottle of Pepto Bismol is running low. However, we know this is part of the long-term cycle of the markets and long-term investors will be rewarded. Furthermore, we are looking for opportunities to rebalance portfolios to provide enhanced performance over time.    

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.