Avoiding the Next Stock Market Whiplash
Avoid the Next Stock Market Whiplash
During the market turmoil in April, we experienced a significant downturn in just a few days, followed by the fastest stock market rebound in 40 years. During this time, I received several phone calls, including one from a client who asked, “John, why don’t you seem that concerned? I explained that my calmness stems from a few main reasons, which I will elaborate on throughout this newsletter.
First, it’s normal for markets to undergo one or two corrections each year and to enter a bear market every three to four years. This behavior is simply part of the cyclical nature of the market. Having worked in this business for decades, I’ve seen it often, much like observing a washing machine as it goes through its cycles: wash, rinse, spin, dry. During the spin cycle, it may seem like the machine shakes, but that’s just part of its normal functioning. Similarly, market downturns are expected; however, it’s crucial to determine if any underlying structural issues are causing these fluctuations.
Is There Something Structurally Wrong with the Economy?
During a market correction or bear market, the first question I always ask myself is whether anything is structurally wrong with the American economy. Many people have a vivid memory of the bear market of 2007-2008, when the real estate market essentially collapsed. At that time, millions of homes were purchased at exorbitant prices, and many homeowners could not pay their mortgages. Major banks, brokerage firms, and insurance companies were all interconnected, and as a result, they began to fail at an alarming rate. The whole system was in serious trouble due to these institutions being tied to assets that had lost their value. This caused a severe bear market, with unemployment soaring and millions of homes going into foreclosure. The Federal Reserve had to step in to support these institutions; without this intervention, the collapse would not only have continued but would have accelerated.
April Tariff Talks Stock Market Massacre
I cannot think of a better description of the downturn in April. It was all about tariff discussions—just back-and-forth, talk, talk, talk. People debated whether tariffs would have an effect or not. However, the key takeaway is that, beneath the surface of the American economy, there was nothing structurally wrong. Unemployment stayed at around 4 to 4.5%. Inflation has decreased. It seemed like the American consumer wasn’t too worried, as spending continued. Yet, the market experienced a significant downturn due to all this chatter.
This situation was similar to what we saw during COVID in 2020, when the stock market faced a bear market that lasted only two or three months. There was nothing fundamentally wrong with the economy then; the government had simply shut it down for a couple of months. Once everything reopened, the economy bounced back rapidly. So, let me reiterate that not only did we recover from the market downturn in April, but we also recovered from the prior challenging months earlier this year when the market was declining. Again, there was nothing structurally wrong.
Another main reason I remain untroubled is that, alongside the macro environment we’ve just discussed, I have been using a technical analysis methodology for investing for the past 27 years. Many of you have seen how our system works over time. You typically receive a call from me every three or six months, or you may visit my office, where I advise making adjustments to focus on the stronger sectors of the market. Our goal is to remain invested in the top-performing sectors. Yes, when the tide goes out, it affects everyone, but we can still ensure we are invested in the best sectors at any given time.
My analysis of the most effective sectors is based solely on performance and pricing metrics. I do not speculate regarding future trends or the potential impact of tariffs on any specific sector. My primary focus is on identifying what is currently prospering – namely, what has demonstrated effectiveness over the last week, month, three months, and six months.
It’s important to note that while one cannot accurately time the market, it is possible to reposition investments toward the strongest sectors at any given time to optimize the likelihood of success in both favorable and adverse market conditions.
401(k) – Need Help?
With respect to 401(k) plans, I frequently encounter younger clients who express the following sentiment: “John, I have invested with you, but a significant portion of my funds remains in my 401(k).” I strongly advocate for 401(k) plans, particularly when accompanied by a company matching contribution. However, a notable concern arises when individuals possess one of their most substantial assets, if not their largest investment asset, without appropriate management. Employers typically provide a limited array of investment options but offer minimal guidance. Consequently, many individuals, especially those actively employed, tend to lack the time to monitor their investments closely, as their primary income is derived from their jobs. Ultimately, they often select a few subaccounts and neglect them for years or even decades.
I encourage individuals to contact me regarding their assets that my firm does not currently manage. Despite the limited investment choices, commonly ranging from 10 to 30 subaccounts, I would be pleased to review these options and recommend which sectors may be worth considering for reallocation. This review process requires minimal time on my part.
Prepare for Upcoming Hurricane Season
On a related note, as we approach June, I would like to remind everyone that hurricane season is imminent. I sincerely hope the West Coast of Florida will not experience further devastation. Areas such as Crystal River, Sarasota, Fort Myers, and Englewood have been significantly impacted over the past three years. It has been observed that hurricanes tend to follow cycles lasting approximately 5 to 10 years. I recall instances in the past when storms that threatened Florida would divert and strike New Jersey. At the same time, for a period of 10 to 15 years, they would instead travel south of Cuba and impact Louisiana or Mississippi. While I do not wish to displace the impacts of hurricanes onto other regions, I do hope that the residents in those areas receive respite for at least the next few years. In light of the rising property insurance costs, it seems likely that individuals may be compelled to relocate.
Thank you, as always, for listening to my thoughts, and I hope you enjoyed this newsletter.
Sincerely,
John Romano, CFP®
Office Phone: 352-753-8590
Email: [email protected]
Address:
3261 US Hwy 441
Building D2
Fruitland Park, FL, 34731
Data contained in this newsletter is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.
John Romano, CERTIFIED FINANCIAL PLANNER™, has over 30 years of experience in the financial field. John is a Registered Representative with Osaic Wealth, Inc. (a member of the FINRA and SIPC) and an Investment Advisor Representative with Osaic Wealth, Inc. He has prepared hundreds of reports for retirees to assist in their retirement income planning needs. He is dedicated to providing portfolio analysis, dividend and income information, and investment management services to retirees (and those preparing to retire) in The Villages, Florida, and throughout the United States.
Securities are offered through Osaic Wealth, Inc., a Member of FINRA/SIPC, John Romano, CFP® Registered Representative. Advisory Services are offered through Osaic Wealth, Inc., John Romano, Investment Advisor Representative. Romano Income Strategies and Osaic Wealth, Inc. are not affiliated. Trading instructions sent via e-mail may not be honored. Please contact my office at (352)753-8590 for all buy/sell orders. Please be advised that communications regarding trades in your account are for informational purposes only. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential and use by anyone who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated. Guarantees are based upon the claims-paying ability of the insurance company. Past performance does not guarantee future results.