So how did the stock market perform over the past month in the face of all this negative data, both reported and expected? As you can see in the chart below, it’s close to having its best month of the year! With the Russell 3000 (the largest 3000 US companies), the Russell 1000 (the largest 1000 US companies), and the Russell 2000 (the smallest 2000 companies out of the Russell 3000), all are positive and above their 50-day moving average. The reason I used these indices is that they can provide a broader look into performance.
Don’t get me wrong, while July has not been a bad month (so far), we are still about 18% below all-time highs. Slightly out of a technical bear market, but not by much.
What’s notable is that while bad economic data comes in, the market went up. Investors everywhere should ask themselves if this is the eye of the storm for another drawdown, possibly even worse than what we’ve seen so far, or if the stock market has already priced in bad news, reached its bottom on June 19, sand the worst is behind us.
What Does This Mean to Me?
I think the current window Mr. Market is in right now is a fantastic opportunity to revaluate your investment allocation. In particular, starting with your financial plan – how much money do you need in the next 1-5 years? How is that money allocated? What are the risks? What about the 5-10 year window? Is that money allocated in a way that it has a stealth long duration bet that is longer than your expected window of when you’ll use that money for a financial goal (e.g., too much high valuation companies)? Finally, what about long-term money? Does it need a rebalance or additional contributions to take advantage of lower stock prices? No one likes a bear market, and no one like an economy in contraction, but one thing is certain – they don’t last forever in the US that is. Investors should take the small moments we get in volatile times such as these as an opportunity to revisit their financial plan and investment allocations to make sure they are confident in the roadmap ahead. Of course, we’d love to help!