The S&P 500 dropped last week, with steeper losses after June inflation results were announced. On Friday, the market began a slow climb back. Inflation was reported at 9.1% for June, the largest gain since November of 1981. The good news is that consumer purchasing, the Purchasing Manager Index, and unemployment are holding steady. Better news is that prices in many areas have already started to come back down since that June peak.
Stocks are a leading economic indicator, meaning they reflect where the economy is going, not where it is. The market was pricing in a large interest rate hike by the Fed, perhaps 1% instead of the originally expected 0.75%. Price declines, particularly around gas, and Fed Governor comments have indicated we’ll be closer to the 0.75%, which contributed to Friday’s rise. The market is also pricing in a moderate recession. By the time we are there, stocks will already have risen. This is why trying to time the market is a problem – you need to think 6-12 months ahead.
I’m hearing people saying they’ve lost money in their investment accounts. Investments are not the same as your bank account. If your checking or savings account balance goes down, you have fewer dollars. With investments, what matters are shares, not dollars. If you haven’t sold and gone to cash, you have the same number of shares – or more if you’re still contributing. This is why Roth conversions can be powerful in a downturn: you are moving more shares for the same tax hit. Contributions are also great: you are buying more shares for the same amount of money. Think of your investments as items you own. When your statements arrive this week or next, look at the increase in shares, not the decrease in the current value. Or better yet, just don’t look at your statements.
Your action item this week is to have your young adult children complete Powers of Attorney and Medical Directives. In many states, including Maryland, the state has statutory forms available. Drop by our office in Downtown Annapolis for copies and complimentary notary services.
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Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, contact the appropriate qualified professional prior to making a decision.