Slouching Into Summer

Slouching Into Summer

At the close of the year’s first half, consumer and investor pessimism reigned. The four-day, 3%-plus decline in the S&P 500 to close out June was a reminder that big questions about the economy are looming large.

Consumer spending slowed in May, suggesting that inflation is pinching pocketbooks. Traders took the news as a sign that recession seems inevitable (some analysts posit that we’re already in one), and stocks in every sector, including traditionally defensive ones, dipped.

The spending numbers overshadowed somewhat positive news on the inflation front. The personal consumption expenditures (PCE) price index for May—the Fed’s favored measure of inflation—showed that while prices are still on the rise, we may have seen inflation’s peak. The core PCE index has increased 4.7% over the last year, and May was the third consecutive month that reading has fallen since February. Inflation may have peaked, but it’s still well above the Fed’s target of 2%.

The lousy economic news helped knock Treasury yields off their recent highs, with the yield on the 10-year benchmark bond falling below 3% as prices rose—subsequently read by many analysts as a recession indicator.

Despite the decidedly mixed bag of economic news and disappointing market returns, the hyperbole about this being the “worst market in half a century” is misplaced, as we’ll show in a second. Bear markets are not a new phenomenon. As investors, it’s important to keep a steady eye on the opportunities available to us today as we work toward our financial goals tomorrow.

Don’t Believe the Worst

As the second quarter ended, you couldn’t miss the headlines proclaiming this to be the worst start to a year since the 1970s. And it’s true. Through Thursday, the S&P 500 index was down 20.6% from the end of 2021—its worst start to a calendar year since 1970.

Well, it’s sort of true. Anyone remember a little thing called the Great Financial Crisis? Or the dot-com bubble? Both of those events sparked deeper six-month dives in the stock market and multiple negative quarters of returns—it’s just that they didn’t happen to kick off on New Year’s Day.

For example, the stock market dropped 29.4% in the second half of 2008. And if you consider the six months ending in February 2009, the S&P 500 was down 42.7%! We don’t see anything magical in a six-month period that begins with New Year’s Eve fireworks and ends days before Fourth of July pyrotechnics.

In fact, since the S&P 500 index’s 1957 inception, there have been 13 six-month periods when the index fell by 20% or more (not including the past six months). While painful for anyone in the markets at the time, patient investors were amply rewarded. In the six months after 20%-plus drops, stocks have averaged 17.6% gains. Stick around for a year after a deep dive and the S&P 500 was up every single time, on average by 28.2%.

You’ve surely heard it before: Past performance is no guarantee of future results. But as we position our portfolios for the road ahead, it’s helpful to remember that it may well be a lot less bumpy than the one last traveled.

Note: Table shows all six-month declines greater than 20% for the S&P 500 index (excluding reinvested distributions) from March 1957 through June 2022 along with index-level returns for the six months and 12 months following. “Average” is the average of the data displayed in the table. “Average All Periods” shows rolling average six- and 12-month returns from March 1957 through June 2022. Sources: Morningstar, Adviser Investments.

Chart of the Week: Why Home Prices Are So High

Interim Chief Investment Officer Jeff DeMaso:

We often get asked when home prices will stop rising. The short answer: When more houses come onto the market.

This week’s chart was inspired by Bill McBride’s Calculated Risk blog—my go-to resource on the housing market. The chart neatly shows the Econ 101 relationship between supply and demand. When supply (the inventory of homes for sale) is low, prices go up. When supply is high, prices fall (or rise less quickly).

The darker blue circles in the chart represent the relationship between the number of existing homes for sale and the average price of homes sold nationwide each month from 1999 through 2021. On average, home prices rose 0.4% each month over the past two decades or so. And while it’s not perfect, the trend—shown in the dashed berry-color line—is clear.

The light blue diamonds represent the first four months of 2022, showing we’ve been in nearly uncharted territory this year. Inventory (supply) has been extremely low and—surprise, surprise—prices have risen more than usual: 1.9% on average each month since the start of the year.

Like Bill, I’m watching for signs of inventories rising, and when they do, I expect to see home-price increases slow.

Note: Chart shows monthly relationship between existing home prices (monthly change was calculated using the S&P CoreLogic Case-Shiller U.S. National Home Price NSA index) and the inventory of existing homes for sale from January 1999 through April 2022 along with the linear average trend over the period. Sources: S&P CoreLogic, the National Association of Realtors, Adviser Investments.

Your Financial Plan
A Long-Term Care Insurance Checkup

You buy insurance to protect against big, expensive misfortunes. For example, it’s common to buy homeowners insurance so you won’t be wiped out and left without a roof over your head should disaster strike. Fortunately, many of us will never actually need to tap our home insurance.

However, there is one big expense almost all of us will face down the road, and few have protection in place for it—long-term care (LTC).

It’s not fun to contemplate, but a person turning 65 today has a nearly 70% chance of needing LTC services at some point. And with a room in a private care facility costing more than $100,000 a year on average, the price for being uninsured is steep. Medicare and supplemental insurance pay for “medically necessary” nursing or home care, but they may not cover the day-to-day help needed to maintain your quality of life.

LTC insurance can help protect you, your family and your financial legacy from debt related to your care. It covers a broad range of services that other insurance won’t, from home health care and modifications (e.g., wheelchair ramps) to assisted living and residential care. A new bipartisan bill that’s likely to pass this year may help take some of the sting out of paying your LTC premiums as well—it would allow people to use funds from their retirement savings account without penalty, lowering both gross income and taxes.

If you’re interested in LTC insurance, here are five key factors to consider:

How benefits are paid. Benefits can be paid three ways—reimbursement, indemnity or cash. A reimbursement policy will pay a percentage based on the amount of your bill or the daily limit on your policy, whichever is less. Indemnity plans require proof of services but pay the full daily benefit regardless of the cost of your care. Cash plans offer the most flexibility but are also the most expensive. Once you qualify, the daily or monthly benefit is paid to you without any restrictions or receipts. If you expect to receive care from a friend or relative, the flexibility that cash policies provide may be the way to go.

How the plan is administered. It is important to understand not only how much your benefits are worth but also how long they will last and whether they are paid out monthly or daily. Monthly benefits are becoming more common because they afford greater flexibility if you don’t need the same level of care every day.

Length of waiting period. The “elimination period” is the number of days you must wait before a policy starts paying—90 days is most common. You can minimize premiums by opting for a policy with a longer elimination period, but make sure to estimate the hit to your assets if you’ll be carrying care costs out-of-pocket for several months.

The impact of inflation. Private nursing home costs have risen about 66% over the last 18 years and costs of assisted living facilities are up 88% over the same period. If you are purchasing a policy when you are young (say, in your early 60s), make sure your benefits include inflation protection.

The track record of the insurer. Ideally, your insurer should have a high credit rating on a site such as and a record of on-time payment of claims. Many popular providers do not have an “A” rating, but that’s not necessarily a reason to avoid them. Asking a financial professional to help find the right LTC broker for you is the best place to start—their experience can help you compare options and find the best coverage for your personal situation (health, age, affordability of premium payments, benefits, etc.).

If you would like more information on LTC insurance as part of your comprehensive financial plan or want help evaluating your current policy, please contact your wealth management team. We’re always happy to help.

And for more on this topic, check out the “Protecting Yourself With Long-Term Care Insurance” episode of our podcast.

Podcast: Practical Steps to Beat the Bear

In markets like these, about the only investment most people can agree on is a big bottle of antacid. But in this episode of The Adviser You Can Talk To Podcast, Interim Chief Investment Officer Jeff DeMaso and Portfolio Manager Charlie Toole offer a few practical steps you can take to help protect your portfolio—and your peace of mind—from the worst of the bear’s claws.

Topics include:

  • How to not panic when losses strike
  • Understanding volatility drivers
  • The profitability of thinking long term

Toughing it out when markets are sliding is no easy task. But Jeff and Charlie have seen this movie before, and they provide some stats to back up why your best defense is staying on track toward achieving your long-term goals. Listen now!

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Adviser Investments in the Media

This week, Chairman Dan Wiener spoke to CNBC about why “the worst first half for stocks” is deceiving and to RIABiz about a sneaky increase in Vanguard’s fees.

Portfolio Manager Adam Johnson appeared on Fox Business to discuss whether we’ve reached “peak gloom.”

In this week’s Market Takeaways, Senior Research Analyst Liz Laprade discussed what Robinhood’s stock price spike means for crypto, while Portfolio Manager Steve Johnson offered his thoughts on the two sides of the recession debate.

Looking Ahead

Next week is a short one for Wall Street and Adviser Investments, with markets closed Monday to celebrate Independence Day. But we will get some data to chew on post-fireworks, including service sector indicators, wholesale inventories and a plethora of reports on jobs and employment.

As always, please visit for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future and a happy and healthy Fourth of July celebration.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

Please note: This update was prepared on Friday, July 1, 2022, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein—including but not limited to the Your Question Answered section—should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

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