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Hear from Chief Investment Officer Jesse Mackey in this week's Multi-Method Investing® Market Perspective.
I’m Jesse Mackey, CIO of 4Thought Financial Group, and this is 4Thought’s Multi-Method Investing® Market Perspective as of October 11th, 2022.
On September 30th, the S&P 500 (Price Return) Index reached a new maximum intraday draw-down of 25.62% from its January 4th peak price. This comes after a partial recovery and a subsequent complete relapse in the time since the previous max drawdown point of 24.5%, which was on June 17th. The index still sat 25.03% below the record as of the close of business yesterday. The initial indication of a Bear market on May 20th (based on the technical intraday definition of a 20%+ decline), has very significant implications for portfolio management strategy.
The history of the S&P 500 index since 1950 reveals that once Bear markets have been identified (in which a 20%+ decline from a record peak has occurred), they have continued for an average of an additional 4.61 months and have experienced an average additional cumulative loss of 16.56% until the trough is reached. However, six out of thirteen instances of a Bear turned around within 1 month after it was indicated (some as early as the same day), while all others lasted longer (up to a maximum of 1.63 years). For long term investors that can afford to wait until a recovering upturn in the market cycle, such data calls for aggressive deployment of cash and cash equivalents into stocks (and bonds in this case) both immediately and in the months following confirmation of a new Bear market. As of today, 4.8 months have already elapsed since Bear market indication. Therefore long term investors should consider an immediate deployment of 100% of any idle cash (not needed for short term liquidity or expected upcoming spending). There is no longer any need to wait for further declines, or to use a dollar cost averaging program for idle cash (as was the case in the last 4-5 months). This should be discussed with your advisor to confirm appropriateness for your situation before taking action.
Based on analysis of the complete historical market type data set using our Multi-Method Adaptive algorithmic process, we are now allowing overweight allocations to Strategic Asset Allocation, and underweights to Liability-Driven Investing, Opportunistic Investing and Selective/Concentrated Investing.
From a probabilistic analysis perspective, valuations tell a story that's positive for most stock types, but even more favorable for some bond types. On this basis, most stock types are now measured as moderately undervalued. By contrast, most bond types are now range from significantly undervalued to deeply undervalued (as in the case of investment grade corporate bonds). Investment grade corporate bonds now reflect the most attractive pricing relative to the alternatives, while emerging markets stocks are the least attractive. International developed markets stocks are now the worst performing publicly traded broad asset type so far this year, while US Short Term Bonds have been the best (despite their own negative returns).
Against this backdrop the outlook for stocks is now highly positive in the intermediate term based on the overall aggregate of our historical market-type data analysis and quantitative probabilistic analysis.
I hope this was helpful. If you have questions or you’d like to discuss what this means for your particular situation, please contact 4Thought at 516-300-1617 or at firstname.lastname@example.org – and don’t forget to subscribe to our blog feed and our YouTube channel. Thanks for watching, and see you next time.