Halfway through the year, the S&P 500 is up 15.25%, including dividends. Yet at times, headlines read as if the market is down 15%. Two weeks ago, the big story was how June 18th ended the worst week for the S&P 500 since February. One week later, the S&P set a new all-time high. The media is constantly telling us we are on the verge of disaster. Things are either terrible or they are too good to last. However, those ringing the alarm bell have little incentive to give the all clear. This is true whether we’re talking about markets, the economy, politics, or your favorite sports franchise. Attention is the coin of the realm and endless crisis keeps the cash register ringing.
With the S&P 500 setting all-time highs again, is it a bad time to invest? JPMorgan found that investing on any given day (since 1988) would return 11.9% one year later, on average. Investing at a new high during that time would have returned 15%, on average. The difference is even bigger looking at 3 and 5 year returns. How is this possible? All-time highs are set on the way up. The markets are not setting new highs during a bear market. It sounds really smart to say “buy low, sell high”, but the truth is that because the market trends upward, previous all-time highs eventually wind up lower than future bear market lows. The S&P 500 is 30% higher today than the pre-pandemic peak. You don’t have to have perfect timing to grow wealth. You just need perspective and a plan.
We continue to monitor inflation. Will it be transitory? Muted Treasury yields tell us that the bond market thinks so. Does transitory mean 3 months of high inflation? A year? Lumber has already dropped 40% from its highs, but energy prices are rising and we don’t expect to see a true answer on wage growth until after government payments end this Fall. In our discussion with Liz Ann Sonders in May, she mentioned that “the cure for high prices is high prices”. We agree, but we wouldn’t alter asset allocations based on our expectations. We prefer to rely on the flexibility inherent in a financial plan rather than tying investment outcomes to a wager on inflation one way or the other.
A diversified portfolio means not having to predict events. It allows for dynamic portfolio management under stress and takes prediction out of the equation. This puts the focus on results, not opinion. We don’t care why an asset class goes up or down. What’s important is that we have a plan for when that happens.