4Thought provides you with actionable investment analysis and perspective on the financial markets.
Contact us to determine whether any ideas presented are applicable to your situation before taking any actions with regards to your financial plan or investment portfolio.
Hear from Chief Investment Officer Jesse Mackey in our most recent Multi-Method Investing® Market Perspective.
VIDEO TRANSCRIPT:
I’m Jesse Mackey, CIO of 4Thought Financial Group, and this is 4Thought’s Multi-Method Investing® Market Perspective as of October 31st, 2023.
August, September, and October have been an increasingly difficult time period for both stocks and bonds, with US large cap stocks now falling into a 10%+ technical correction from their July 27th levels (registered on 10/26, with a max drop 10.92% so far as of 10/27). Late July is currently the highest peak in the recovery from the Bear Market first registered in May of 2022, but even this was still short of the all-time record peak from early January 2022. Several asset types have been pushed into negative territory for the year-to-date in 2023 during the last 3-4 weeks as a result of the recent draw-down in both stocks and bonds. US large cap stocks are the best performing publicly traded broad asset type so far in 2023, while US small cap stocks are the worst.
On 10/13/22 the S&P 500 (Price Return) Index reached the current maximum intraday draw-down of 27.5% from its 1/4/22 peak price. After a partial recovery in the time since then, the index sat 13.53% below the record as of the close of business yesterday, despite just experiencing its first 10%+ technical correction during this time period. Both the initial indication of a Bear market on 5/20/22 (based on the technical intraday definition of a 20%+ decline), and the recent 10% technical correction registered on 10/26, have 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 (for a total cumulative drawdown of 33.2%). 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). As of the date of the deepest trough measured so far (on 10/13/22), 4.87 months had elapsed since Bear market indication, and 1.45 years have elapsed as of today (both measures longer than average).
For long term investors that can afford to wait until a recovering upturn in the market cycle (which most likely already began in October of last year based on historical data), this calls for aggressive deployment of cash and cash equivalents into stocks (and bonds in this case). In addition, technical corrections of 10% or greater have historically been excellent times for long term investors to deploy idle cash into their portfolios - especially during the first correction in a recovery from a bear market, which appears to be the case in this instance. Long term investors should now consider an immediate deployment of 100% of any idle cash (not needed for short term liquidity or expected upcoming spending). There is no need to wait for further declines, or to use a dollar cost averaging program for idle cash. 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, both stocks and bonds of most types now range from slightly undervalued to near fair value. Long term US Treasury Bonds now reflect the most attractive pricing relative to the alternatives, while international developed markets stocks are the least attractive (but still well within a normal range).
Against this backdrop the outlook for stocks in general is now significantly positive over 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 info@4tfg.com – and don’t forget to subscribe to our blog feed and our YouTube channel. Thanks for watching, and see you next time.
Leave a Comment