The Wall Street adage is “Sell in May and go away.” However, does it apply during times of war, rising inflation, tightening monetary policy and elevated asset prices? Or should you be doing your rebalancing session now?
Last week, I outlined the risk of a recession in 6 charts. (Click to access that blog.) The S&P500 has recovered some of its losses on the year, but is still down -6.9% from the high of 4818.62, set on January 4, 2022. March bloomed with 5.2% returns and April is often sunny on Wall Street. However, stocks have been sliding so far this month. Additionally, there is a 1Q 2022 GDP report waiting in the wings that could overshadow any Spring glee that investors might muster up. According to the Minutes of the Federal Reserve Board’s FOMC meeting March 15-16, 2022, “The first quarter [GDP] pace was slower than the rapid gain posted in the fourth quarter of 2021.”
The 4th quarter of 2021 posted GDP growth of 6.9%, with full-year growth of 5.7% in 2021 (source: BEA.gov). That’s the fastest the economy has grown since 1984. You might think, “Well, slower than 6.9% might still be pretty good.” However, according to the FOMC’s Summary of Economic Projections, the 2022 GDP growth is projected to be just 2.8%. GDPNow, offered by the Federal Reserve Bank of Atlanta, warns that the 1st quarter of 2022 might have slowed to just 1.1% GDP growth. Asset valuations are still far too high for that slow of growth.
U.S. Prices Are Too High for Slow Growth
As you can see from the well-known Buffet Indicator chart (above), equity prices are higher than they have ever been. History teaches us that when valuations get this lofty, the correction can be steep and severe. As one example, the most recent all-time high was February 2020 – right before the 2020 Pandemic Recession. Between February 19 and March 23, 2020, the S&P 500 sank -38%. That was the fastest that a bull market had become a bear.
In the Dot Com Recession, which was another period of lofty equity valuations, the NASDAQ Composite Index bottomed out with up to -78% losses.
History books can tell you what happened in the Great Depression.
Growth is Growth
The US is a pretty resilient economy because we are so well-diversified and have so many leading industries that we’ve invested in over the years, including technology, biotechnology, electric vehicles, clean energy products, and many other devices and services that the rest of the world really likes. It didn’t hurt that we printed up a lot of money and passed it out everywhere, and paused payments on student loans, rent and mortgages during and after the pandemic. Most of the support has seen its sunset. The pause on federal student loans was recently extended through August 31, 2022.
There are other countries in the world that also make things that all of us like. China is the world’s factory. Indonesia is the leading producer of nickel, which is used in batteries for electric vehicles, computers and other things. Copper prices are at an all-time high and that benefits Chile (the number one producer in the world) and Peru (#2). Many of these other countries are expected to have much higher GDP growth in the US. Be sure to check out my videoconference on Hot Countries from April 2, 2022. The other upside to these countries is that their equity prices are not as lofty as the U.S.
The Safe Side is Vulnerable
I still hear a lot of people saying, “I have to invest in something on the safe side. I have to get some sort of income. Otherwise, I’m losing money, due to inflation.“ I think a more apt attitude toward the safe side of your money is one proposed by Will Rogers, who said, “I’m more concerned with the return of my money than the return on my money.”
Why is that quote so appropriate today? Over half of the S&P 500 is at or near junk bond status. Bonds are illiquid and negative yielding. In order to get any income at all, you have to take on risk. With rising interest rates, the patient investor could get a good yield on a creditworthy, short or medium term bond, if they just take their foot off the gas and wait for interest rates to rise. Having money available to buy into bonds when interest rates are higher could be a lot more valuable and yield more than getting locked into a long-term high-risk low interest-rate investment at this time.
Yes, We Had a Recession in 2020
I hear a lot of people saying they’ve been waiting for the correction, and it just never came. However, we had a recession in 2020. It was the shortest in history. Just prior to the recession, we had the swiftest about-turn from bull to bear in history. Money moves very fast these days. The Treasury Department cannot just print up trillions to save the day every time we hit troubled times. In fact, we are now in a monetary tightening trend – the opposite of free, easy money. I encourage everyone to read our Warning Signs of a Recession blog to get caught up on why you want to be properly diversified, keep at least a percentage equal to your age safe and consider overweighting another 10 to 20% safe, based upon market conditions. It’s also very important to know what safe looks like in a Debt World, where bonds are losing money. You can learn and implement these time-proven, 21st Century strategies by attending our June 10-12, 2022 Online Financial Freedom Retreat. Email info@NataliePace.com to learn more.
2021 was an outstanding recovery year, after the pandemic threw the economy into a recession with -3.5% GDP growth in 2020. 2021 started the first quarter off with a bang of 6.4% GDP growth. This year’s predictions are for 2.8% full-year GDP growth, with the first quarter’s growth potentially coming at just 1.1%.
April could get stronger simply because it’s a traditionally strong month, Spring is happening and people get a little more optimistic about things. People also receive their tax return. We’ve seen stimulus checks increase share prices, and tax returns could as well. However, on April 28th at 8:30 am ET when the 1Q 2022 GDP growth report is issued, the Jubilee could end very quickly.
The best strategy will not be market timing, or trying to jump all in or all out. Buy & Hope is a last century strategy that has been quite a disaster in the 21st Century. If you'd like to personalize your own sample Pie Chart, email info@NataliePace.com.
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About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021.
Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.Other Blogs of Interest
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.