The Market and a Look Ahead

Stock and bond market returns in 2022 have left investors frustrated and dour about the future. But as Warren Buffet is known to have said, “the stock market is a device for transferring money from the impatient to the patient.” Bear markets are normal expected events that can be as equally rewarding as they can be devastating. Although past performance is no guarantee of future returns, every bear market in history has only served as a great entry point in retrospect.

It seems important to note that the recession in 2020 was not so much a recession but a lockdown. Now, with two consecutive quarters of declining real GDP, many believe we are back in recession. However, we believe that as of now we are not in a recession and that the economy is much stronger than many believe. Current data shows Initial Jobless Claims, Continuing Jobless Claims, and the ASA Staffing Index are all healthier than they were before the 2020 pandemic. Nonfarm Payrolls Increased 263,000 in September, another sign no recession has started or is about to start.

Wages also continue to grow, as average hourly earnings are up 5.0% versus a year ago. Although we estimate that the consumer price index is up 8.1% from a year ago, we also like to follow total wages paid, which is based on average hourly pay and total hours worked. Total wages are up 8.6% from a year ago, meaning wages are beating inflation (mainly because workers are working more hours). However, the point remains that household income and balance sheets remain strong and are able to weather the storm of inflation.

Although we do expect a recession, we do not believe it is here and now. We believe rate hikes, which have already impacted the housing market, will likely cause a recession by the second half of next year, with some variability of that timeline. There is certainly more economic pain to come, in certain areas, like the labor market, but that pain is almost completely in front of us, not behind.

Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.

Look Forward To The Recovery

Investors are feeling pessimistic about the future, with high inflation, the Fed raising rates, war in Ukraine, and high energy prices contributing to a sense of doom and gloom. Although the current market is technically a bear market, with the index down by almost 24% after six months, we believe that it lacks the power for a long, drawn-out bear market like those we have seen in the past.

Bear markets typically last around nine months and experience an average decline of roughly 35%. However, we see underappreciated positives globally, such as positive yield curves, healthy loan growth among developed nations, solid earnings and revenue growth in Q1, and American households being in a strong position to weather inflation.

The market moves on the gap between expectations and reality, so as good news starts to emerge, the market will leave behind investors who are expecting a more catastrophic downturn. While equity markets can be unpredictable in the short term, we believe that well-positioned assets will benefit from better days ahead over the long term.

Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.

Bear or Correction? Interlaken Advisors 2022 Outlook

At the time of writing, the global markets have experienced a sharp decline since the beginning of the year, with an 11% drop from January highs. A host of factors, including high inflation, supply chain disruptions, regional conflict in Eastern Europe, and the ongoing COVID-19 pandemic, are hindering global growth.

Although these issues present concerns, the market has already priced them in. The efficient market hypothesis suggests that all widely known information is already factored into the market. However, if the situation deteriorates beyond what is already priced in, the market may continue to decline.

As investors, our role is not to predict the future, but to react to available information and data and position our assets accordingly to generate positive returns. While we anticipate a volatile 2022, we expect a rebound after the midterms in the second half. We see inflation as temporary and expect it to ease as supply chains correct and rates rise, decreasing demand. We do not believe that Russia desires war and anticipate that the conflict will abate within the next six months. Additionally, as COVID-related issues decrease, we expect restrictions to continue to ease in the spring and summer.

While we cannot predict the future, we expect the market to rebound once these issues are resolved. Bear markets are typically caused by unforeseen factors that have the power to ruin trillions of dollars of GDP or overly euphoric sentiment. In contrast, corrections can happen for any or no reason, often linked to sensational news headlines. Only time will tell whether this is a bear market or a typical correction, but we are optimistic that it is the latter.

Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.