I think speed bumps are a sin against humanity. I have a bit of a speeding problem and could use some encouragement to slow down, but speed bumps seem to be overkill.
Stocks have gotten off to a bumpy start in 2022, with the potential for Federal Reserve rate hikes coming and worries over Russia starting a war with Ukraine only adding to the uncertainty. I don’t want to minimize the impact of this war’s terrible effect on people, because it is real, and I am praying for the people of Ukraine. However, I feel the need to address how Putin’s bullying will impact the stock market, strangely enough, there’s some positive news out there, even though it might not feel like it.
Starting with Russia and Ukraine, the truth is the U.S. economy, and the overall stock market probably won’t be impacted much by the recent conflict. In fact, stocks have taken most previous major geopolitical events in stride. Looking at more than 20 geopolitical events such as the attack on Pearl Harbor, 9/11, and Russia’s annexing of Crimea in 2014, the S&P 500 Index fell only about 5% on average.
With anxiety running high, here are some important numbers that should help calm some nerves.
- The S&P 500 Index officially moved into a correction of 10% this week for the first time since March 2020. Since 1950, it has averaged one 10% correction per year, so some volatility is expected and probably due.
- On average, the index sees a peak-to-trough correction of 14% in any given year, and even in up years there is an 11% correction on average.
- After a correction of 10-15%, the index has seen an average one-year gain off the lows of 22% and has gained in 12 of the 13 one-year periods.
- This is a midterm election year, (I already dread the political ads) and midterm election years are usually the most volatile out of the four-year presidential cycle. In fact, the average midterm year sees a peak-to-trough pullback of 17.1%, but usually stocks on average are up more than 30% from its low the next year.
There is some good news market wise. Corporate America continues to report strong earnings. S&P 500 earnings per share for the 4th quarter of 2021 are up 31% year-over-year (FactSet), which is about 10% above the estimate when earnings season began. The companies in the S&P 500 are seeing revenues increase close to 15%.
It’s going to be bumpy. I’ve been doing investments since 1996 and the markets have gotten more volatile every year. Volatility is here to stay and Putin being stupid isn’t going to make it any better. However, with U.S. consumers and businesses in solid shape, I think the U.S. economy could still have a positive 4% growth this year.
Growing up in the ‘80s watching Dukes of Hazard made me think bumps might be more fun. (I won’t discuss the finer points of Daisy Duke here because my wife reads these.) The Duke boys jumped all the bumps with spectacular landings, but I’ve yet to figure out a way to jump speedbumps without throwing out my back.
Have a blessed week!
https://www.steadfastwealth.net/richard-baker
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Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
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