We have officially reached bear market territory, meaning that the S&P 500 Index has fallen 20% from the all-time high it reached at the beginning of 2022. Based on many headlines we have seen, we’ve also reached “peak fear”. Many of our clients have been messaging us, wanting to move to cash.

Our perspective is that all known information and expectations are already priced into the market. Worried about inflation? Rate hikes? Lockdowns in China? Price of gas? – Those are all valid concerns, but those fears are already baked into today’s prices. No one can say with any certainty what the markets will do in the coming months. From where we stand now, over the short term, the market is just as likely to move up as it is to move down. It is more than likely to move up over the next few years.

Recall late March of 2020……it felt like the world was ending; the pandemic had just started; we were a week into our own lockdowns. Covid cases were climbing. Businesses were shut down. In no way did it feel like we had reached the bottom….but we had. The markets are forward looking, so it is possible the worst of the bad news has been delivered and we can look forward to a market recovery. Of course, It is also possible that more bad news will come out that could hurt the markets further.

It does feel like we have reached a point of peak fear and equity funds are broadly seeing fund outflows……which historically has signaled a good time to buy.

Some reasons for optimism:

  • Have we already reached peak inflation? Some metrics like the ‘core personal consumption expenditures index’, fell in recently for the first time since October 2020.
  • Current valuations no longer pointing to the US market being overvalued (which has been the case in recent years)
  • Intra year declines are common…. the average intra year decline going back to 1980 is -14%. Markets were positive in 32 of those 42 years to end the year.
  • Looking back at the 15 worst single days in S&P500 since 1960….the average 1 year return after those declines has been over 30%!

Reach out to your advisor to discuss the best strategy in wake of these recent events. Don’t have a Larson advisor? Book a free introductory meeting here!