War & Markets
Almost two years to the day after COVID-19 was officially declared a pandemic, the United States is finally emerging into a state of living with an endemic illness. The human toll has been horrific, with nearly one million dying here and more than six million perishing worldwide. On top of that are the physical and mental health issues still endured by countless others. Yet until recent months, equity markets were extraordinarily strong as the economy adapted to the original shock waves felt in early 2020.
Now the world is faced with another existential threat as Vladimir Putin has attacked Ukraine in a seemingly ego-driven quest to reestablish his vision of the greatness of the Soviet Union. Again, the human toll is horrifying and sure to become far worse. The ultimate outcome is unknown and unpredictable - causing new shock waves in global markets already nervous about supply chain shortages, rising inflation and an end to the liquidity spigot provided by the Federal Reserve and other Central Banks.
As of this writing all major US indices are down more than 10% from their highs, with both the large-cap growth dominated NASDAQ and the small-cap Russell 2000 in bear market territory signaled by a decline of more than 20%. Sharp selloffs in combination with continued uncertainty, whether caused by health, economic, or geopolitical issues may lead those who have entrusted us to manage their wealth to ask:
“Am I still OK?”
Being able to answer yes under virtually any scenario drives our wealth management process. A deep understanding of a client’s goals, time horizon, risk tolerance and income and liquidity needs is necessary before establishing a target asset mix and making specific investments. This approach allows us to reassure an investor when markets are turbulent. Consider the individual needing to live off the income generated by their portfolio. If we attach that individual to a stream of dependable and growing income, riding out market volatility becomes easier, as their primary goal is being met. On the other hand, an investor with substantial assets and a long time horizon can view market shocks as an opportunity to increase equity exposure.
While history is no guarantee of the future, it does teach us a great deal. Since the start of World War II there have been numerous conflicts, many bringing on fears like today’s. This chart from LPL Research demonstrates how getting out of the market would have been the wrong decision in every single case; unless, that is, one possessed the elusive crystal ball to signal when to return. In virtually every instance the time to reenter was well before it was clear how and when the conflict would end.
Staying the course during fearful times can be difficult, especially in this age when news is nearly instantaneous and the plight of the victims of a senseless and intensifying war is in front of us non-stop. In March of 2020 it was challenging to fathom how companies could survive what appeared to be an indefinite shutdown of the global economy. And in early 2009 many still believed the financial crisis would cause a depression - right before markets took off on an historic multi-year run. The key as always was to be positioned conservatively enough to not be forced out of the market at the bottom.
While nearly 40 years in the investment world has given me a deep understanding of markets, it has also convinced me of the folly of trying to predict global events or near-term market behavior. I am optimistic, however, that our clients are positioned to achieve their individual goals, to ride out tough times, and to prosper when recovery comes.
David M. Maley
Chief Investment Officer
1102 Partners, LLC
1102 Partners, LLC (“1102 Partners”) is a Registered Investment Adviser.
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