Private Wealth Insights Weekly Update

Brett Halley, CFA® |


The market appears to be in no mood to celebrate Mexico’s victory over France in the Battle of Puebla on May 5, 1862… after a breathtaking rally yesterday, we are currently giving all of that back and then some.  With red numbers on the screens in front of me, thought I would jot down a few notes!

This is truly a strange year!

As I write this, the S&P 500 is down 12.93% and the Barclays Aggregate US Bond Index is down 10.87%... it is rare for the traditional “60/40” portfolio to behave this way!  The first chart below shows returns going back to 1976… average return is about 11% and only a handful of negative years.

Over the last decade, we have grown accustomed to quick, “snapback” recoveries from declines this… the second chart shows the number of days until markets recover from 10% declines going back to 1967.  The last six times have taken 4-6 months… while that is possible again, I do not believe it is likely in this scenario.

Now what?!

Three key points to “takeaway” from this note:

  • The current environment is not great for paper assets and this current market correction is not over; but it will end! 
  • Markets do recover, both charts above show that.  We will actively manage your short-term cashflow needs while we wait!
  • Markets will always “overshoot”… they go up too far when economies are expanding and they go down too far when economies are contracting.

This is an opportunity to implement strategies designed to generate higher after-tax returns in future years.

Volatility always creates opportunity.  There will be opportunities to deploy new cash in solid, long-term investments; we plan on taking advantage of those!

For the first time in more than a decade, I am neutral on the outlook for bonds…. We have been talking with you for years about our “underweight” position in bonds.

It is very rare for bond markets to fall this far this fast (rates to go up this far this fast).  Clients with a focus on income say “Yay!” for the first time in years.

The market is pricing in Fed rate hikes for the next 8 meetings… I do not believe they will come anywhere near that number with the economy already slowing.  If we slide into a recession later this year, they may be forced to cut rates!

Happy Cinco de Mayo!