By: Matt Garrott

The S&P 500 was flat in May, but managed to snap a streak of 7 negative weeks in a row.  At one point, investors were less than 2% away from a bear market.  The S&P 500 did briefly dip below the bear market threshold on an intra-day basis, but didn’t close there.  I don’t put much faith in arbitrary milestones whether they’re round numbers or calendar dates.  The market technically avoided a bear market by closing down “only” 18% off its highs, but that still didn’t feel good.

Inflation may have peaked in March.  If so, this is in line with expert predictions.  Not in line with expert predictions: the Russian invasion of Ukraine and China’s zero Covid lockdown.  This is one reason predictions are pointless – they may get the outcome right, but get the causes wrong.  The reverse can just as easily happen – getting the causes right, but outcome wrong.  As an investment strategy, predicting the future is a money-loser.

We are in a stretch of time that’s ripe for cherry-picking.  Through the end of May, the S&P 500 is down 12.76%, including dividends.  At this time last year, the S&P 500 was up 12.62%, including dividends.  The S&P 500 is flat over the last twelve months, down 0.30%, including dividends.  Last year, the index was up 40.32% over the previous twelve months including dividends.  I expect to see a brood of freshly hatched investment products soon.  Their backtested returns will be great over the last three years.  I don’t know what they’ll look like, only that they’re coming, investors won’t need them, and they will carry high fees.

Since 1926, US Large Cap stocks have returned about 10% per year on average, including dividends.  Looking at a chart for this period, it looks like a smooth path up, but after zooming in, it’s clear that the average year is quite bumpy.  As investors, we are zoomed out, planning for the long-term.  As humans, we live day by day, zoomed in.  It’s tricky to balance data that comes tweet by tweet with goals that are measured in years.  It is clear, however, that investor behavior during downturns will make or break long-term portfolio outcomes.

Fairway Scorecard 5-31-2022