The Case for Remaining in the Market

After a September shellacking, stocks roared out of the gates earlier this week, with major indexes notching their largest two-day gains in over two years before pulling back slightly on Wednesday.

Of course, that’s just a few days. We’re not sounding the all-clear or saying we’ve seen a bottom. Nobody knows in real time when bear markets end and bull markets begin. But the markets’ flip-flop (bonds also rallied) certainly puts the lie to those who think they can predict ups and downs (more on that in a minute).

Our response to the markets’ machinations is to remain vigilant, participate in bear-market rallies as they occur and stay focused on helping you achieve your long-term goals. We know that wealth is grown and protected over the long run, with discipline and preparation rather than trying to trade in reaction to every random market move.

Here’s what else we’re focused on and why it matters:

• Job openings fell by the most in over two years in August, contributing to this week’s stock rally. Counterintuitive? A red-hot labor market pushes wages up and leads to higher prices for goods and services. If job growth slows, monetary policymakers at the Federal Reserve can consider easing up on their aggressive interest-rate-hiking agenda. Still, layoffs remain low—with 1.7 open jobs in August for every unemployed American, down from 2.o in July but above the historical average.
• OPEC+, the international energy cartel led by Saudi Arabia and Russia, announced Wednesday it would reduce oil production by two million barrels a day (roughly 2% of global oil production) in a bid to push up prices. After falling 32% over the last four months, oil prices began to tick back up in late September, with crude hitting its highest mark since Sept. 14 on yesterday’s news. The question is how much the move will impact inflation, which had appeared to be slowing.
• Left for dead in the age of e-commerce, retail real estate—yes, brick-and-mortar stores—appears in better shape today than it has in at least 15 years. Retail vacancies dropped to just over 6% in the second quarter, and more stores opened than closed in 2021, the first time that’s happened since 1995. In fact, in-person retail sales are increasing faster than internet sales this year. Is this a blip as consumers rediscover shopping malls after being cooped up during COVID, or merely a reflection of a slowdown in construction where fewer stores see greater traffic? Either way, it signals the enduring power of the American consumer: Shopping appears alive and well heading into the all-important holiday season.     

Chart of the Week: Best and Worst Market Days Stick Together

Interim Chief Investment Officer Jeff DeMaso 

September lived up to its reputation as a lousy month for stocks as the S&P 500 index posted its third-worst September in six-and-a-half decades. Then, as mentioned above, October got off to a cracking start with the S&P index gaining more than 2% on each of the first two days.

What this volatility tells me is that we are firmly in a bear market. During bear markets, stocks tend to move much more—both up and down—on any given day than in bull markets. In fact, the worst and best days in the stock market tend to cluster during bear markets.

As you can see, the 20 best days (triangles) and the 20 worst days (diamonds) in the stock market since 1990 occurred during the run-up and then bursting of the tech bubble (1997–2002), the Global Financial Crisis (2008–2009) and the COVID panic (March 2020). Yes, there were also a few outliers, but you get the picture.

I think there’s some logic to all of this: When stocks are down a lot, trader and investor emotions are on edge. When emotions are running high, the market is poised for big swings day-to-day.

The fact that the best and worst days are clustered together is why you can’t let the bad days spook you out of the market… it would cause you to miss the best days. And you very much want to be there for those good days.

Are Digital Assets Done For?

Senior Research Analyst Liz Laprade

Bitcoin’s price is down almost 60% year-to-date and it’s a similarly sad story for other digital currencies. On top of poor performance, the year has been riddled with negative news about cryptocurrency security and potential regulatory oversight. Just this week, Treasury Secretary Janet Yellen released a report asking Congress to legislate tighter regulations over digital asset trading.

Additionally, there have been large-scale layoffs at crypto firms and we’ve seen some serious flaws exposed in parts of the system as prices sank—the bankruptcy of crypto lender Celsius in July being the most notable sign of distress.

That said, all is not lost in crypto land: Last month, NASDAQ announced plans to act as a custodian for bitcoin and ethereum on behalf of institutional investors, and other larger financial institutions are lining up to offer similar services.

The fact that institutional adoption hasn’t evaporated is one key difference from prior crypto crashes. As for price performance, there are still some positive signals. I looked at bitcoin’s relative strength index, which tries to measure the rate at which the asset is selling, with below 30 being oversold and over 70 being overbought. What I found was that if you bought bitcoin every time its relative performance sank below 30 over the past four years, your average one-year return was 38%.

Now, that comes with some massive caveats, most notably that the drawdowns over the full period from 2011 to today have gone as low as 93% and buying on the way up would require more than a little market-timing magic.

In summary, it’s been a rocky road for crypto bulls this year, but that’s nothing new. I can’t say for sure that we’ve seen the bottom in prices—regulation, interest rates and distressed crypto-related firms are all huge headwinds. But crypto optimists are holding out hope for a bright future (and Fidelity clearly sees a market; it launched an ethereum index fund for accredited investors at the end of September). History shows us that it may pay to hold on to your coins as long as you can afford some big drawdowns along the way.

I’ll stick to my usual digital-asset disclaimer: Don’t invest more than you can afford to lose.

Retirement Spending Made Simple

Manager of Financial Planning Andrew Busa

When it comes to retirement, it’s not just about tapping your savings, it’s about the order in which you do it. Here’s the order we recommend for most clients:

Your first source for everyday spending should be the cash savings you’ve accumulated. Tapping into cash accounts initially allows your investments to continue to compound as long as possible. One caveat: Keep your emergency fund intact—don’t touch that safety net unless it is absolutely necessary.

Second, turn to your traditional individual retirement accounts (IRAs) and tax-deferred accounts. You’ll be obligated to make withdrawals from these accounts in the form of required minimum distributions (RMDs) once you turn 72. That said, if you don’t need to use your RMDs for income because you’re still using cash reserves, reinvesting those required distributions is something to consider.

Next, for expenses that can’t be covered by your cash and RMDs, turn to your taxable brokerage accounts. But be sure to pay close attention to what you’re selling when you tap these funds: Selling highly appreciated stocks can result in a hefty tax bill. (If you need some assistance with this, give us a call—we’re here to help.)

Last but not least, turn to your Roth accounts. Funds held in a Roth grow tax-free forever. Heirs don’t pay taxes on a Roth when they inherit it, either. This makes them a wonderful estate planning tool—and the least favored option for everyday spending. The longer you leave Roth money untouched, the greater your potential gains down the road.  

And that’s how the “retirement tap” works. Unfortunately, the beer is not included.

Podcast: The Right Kind of Debt for Retirees

Debt is bad, right? Not quite. Deployed at the right time and under the right terms, debt can be a powerful tool to smooth the ups and downs in your income stream and allow you to meet immediate needs while still building your wealth. In this episode, Manager of Financial Planning Andrew Busa and Financial Planner Mike Dillaire discuss how debt fits into your overall financial plan, including:

• When adjustable-rate mortgages work in your favor
• How portfolio lines of credit can be a useful tool when you’re preparing for retirement
• Why reverse mortgages are a possible option, even if you have substantial assets beyond your home

Whether you’re mid-career, getting ready to retire or in retirement, making the most of debt is an essential part of a healthy financial plan. Click here to 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’s wealth management or investment specialists will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Adviser in the Media

Portfolio Manager Adam Johnson appeared on Fox Business this week to explain what’s behind his optimistic market outlook. And in this week’s Adviser Takeaways Liz Laprade discussed the latest developments in the crypto market, while Account Executive and Financial Planner Diana Linn offered 5 ways to strengthen your financial plan.

Looking Ahead

Next week, we’ll get a look at the minutes from last month’s Federal Reserve meeting, as well as helpful reads on small businesses, inflation, retail sales and consumer sentiment.

As always, please visit www.adviserinvestments.com 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.

About Adviser

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed 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 www.adviserinvestments.com or call 800-492-6868.