The stock market — the daytime adventure serial of the well-to-do — wouldn’t be the stock market if it didn’t have its ups and downs. One of the elder statesmen of financial markets, J.P. Morgan, when asked to predict the market, said: “It will fluctuate.”
That is how John Brooks chose to start his book Business Adventures. It starts by telling the story of 1962, when the US stock market suffered its worst selloff since the Great Crash of 1929. Little remembered, the crash of 1962 now has a fresh distinction. This year’s first half, thankfully over, has been the worst start for stocks since WW2 war — except for 1962. This is how the two years compare:
Can history be any guide? In 1962, the bottom was hit in late June, and anyone buying then would have made 15% by the end of the year. However, they would have had to wait for the peaceful resolution of the Cuban missile crisis before the market made a convincing recovery. Overall, 1962 was still a bad year, with the S&P shedding 11%.
Worries about nuclear conflict have probably been canvassed more in 2022 than in any of the 60 years since, which helps explain the backdrop of low confidence. There’s much appeal in the suggestion that we might have to wait for some clear settlement to the Ukraine conflict before there is any durable recovery — just as markets needed to know that Kennedy and Khrushchev had stepped back from the brink before stocks rallied 60 years ago.
In 1962, there was concern over margin calls, and over the risks that holders of mutual funds, a new-fangled instrument gaining in popularity, might all sell and create a downward spiral. This seems very similar to worries about ETFs now. Then, the greatest concerns were whether the technological infrastructure and innovative financial instruments would work when put under pressure. They came through the test 60 years ago. Today’s technology is far more advanced, but so are the demands. The question remains the same: Will the market infrastructure be able to deal with what lies ahead, or will it buckle and create a far worse crisis?
Should we buy? A range of equity strategists say yes.
The S&P500 index closed at 3,785 on 30th June 2022. Listed below are some analysts projections for the 2nd half of 2022.
The half ended with an exciting shift in the bond market. Bets are now moving heftily to discount a Fed hiking program that is completed by early next year, followed by a series of cuts that will be well underway by the end of 2023. This of course all hinges on inflation peaking and being adequately managed going forward.
One thing we can be certain of, is that stocks always recover. It is just a question of “How long will it take?”.
At the turn of the 21st century with the Y2K and Dotcom bubble, it took the markets a year or two before they recovered. With the 08/09 Financial Crisis, the Nasdaq took 539 days to recover. In 2020 the COVID pandemic caused a “flash crash” with markets having recovered by year end. The Nasdaq tech heavy index is currently down nearly 30%. We do not expect a repeat of 2020 with a quick bounce back. It is our considered view that stocks will take some time to consolidate.
What should investors be doing? Review your strategy and ensure that your portfolio has quality stocks, then leave it alone and let it do its natural thing. Equity markets are long term investments and by their very nature, will always “fluctuate”, both to the downside and the upside.
