5 reasons to be grateful this Thanksgiving
Despite the rough road for investors, there’s plenty to be thankful for — even in these markets.
Our Top Market Takeaways for November 23, 2022
Written by Global Investment Strategy
Happy Thanksgiving: Calm before the food
The S&P 500 is now up over 10% from early October lows (down 17% from year-to-date highs), breaching the 4,000 mark for the first time in two months. The VIX Index, which measures implied equity volatility, is at lows not seen since the end of summer.
Meanwhile, short-term Treasury yields are still approaching cycle highs as longer-term yields have barely dropped off their peak. The MOVE Index, which measures implied rates volatility, persists at historically elevated levels.
The idea that we may be approaching the beginning of the end of the policy tightening cycle is providing welcome relief to investors. The recent optimism could be attributed to a number of factors, whether it’s signs from both U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) that peak price pain may be in the rearview, hints from FOMC members that the Fed may execute a slowed tempo of rate hikes from here, upside surprises to earnings reports, or early World Cup wins.
Although a few positive developments have made way over the past week or so, it’s certainly not all rosy (think: acute pain in interest rate-sensitive segments of the economy and the crypto ecosystem). We can’t say we’d be the one at the Thanksgiving dinner table betting that market volatility is purely behind us.
Regardless, the holiday season is here, and we spend today’s note taking a much-needed moment to reflect.
Spotlight: Giving thanks
Despite the fact that pretty much everything that could go wrong this year did, it’s tradition for us to give thanks. Through it all, and before we get to the celebrations with friends, family and a thick turkey, here are five things we’re grateful for this holiday season:
- In-person gathering. We’re thankful to have the chance to travel around the country, meet different people and talk about markets on behalf of J.P. Morgan. One of our personal favorite parts is learning about the financial goals and dreams that people are investing for in the first place, and helping them feel empowered to pursue them by offering investment insights in an approachable way.
- The democratization of investing. Just a few generations ago, investing was really only in the purview of the wealthy. But recently, the rise and scale of self-directed online investing has made markets approachable for the masses, regardless of income bracket or career path. For one, investment entry levels and trading costs have fallen significantly as convenient investment vehicles like exchange-traded funds (ETFs) and markets-oriented briefings like Top Market Takeaways have continued growing.
- What may be the most compelling market entry point in over a decade. History has shown us that the equity market tends to move up and to the right over time. If you’re a picture-perfect investor, you buy at the low and sell at the high. In reality, that is a difficult game to play – especially when over the past 20 years, seven of the 10 best days for the S&P 500 occurred within just fifteen days of the 10 worst days.
Instead of trying to time the market perfectly, focus on the big picture: Today’s selloff across asset classes is giving investors the luxury of choice. Oftentimes when things seem perhaps the most bleak, there are likely opportunities to uncover.
For some, that could mean adding to stocks, which are about 20% down from January highs. Over the past 50 years, the S&P 500 has only entered bear market territory (aka the familiar 20% or more from highs) a mere nine times.
For others, it could mean considering deploying capital in high-quality bonds, which are yielding about 6% for the first time in 10 years. The annualized performance of the S&P 500 over the past 20 years is ~6.5%. For the first time in a long time, markets are revealing a broad range of options to help investors achieve financial goals while taking less risk.
- The survival of the 60/40 (you can’t be revived if you were never dead). The stalwart 60/40 stock-bond portfolio has seen one of its worst performances on record this year. It’s painful for investors when stocks are down over 20%, and especially painful when bonds join alongside. In our view, we’re likely embarking on the beginning of the end of the hiking cycle that has catalyzed these losses in the first place. We think investors are now well-positioned to benefit on the other side.
Over the long run, our Long-Term Capital Market Assumptions stress that today’s attractive levels lend to impressive compounding future returns. Over the past 25 years, the rolling 10-year return of a 60/40 stock-bond portfolio has averaged 6.1%. Our forecast annual return over the next 10-15 years has leapt from the 4.3% that was expected just last year to 7.2%, well above the historical average.
- Health. We know people say that a lot, but it’s often taken for granted. When something goes wrong health-wise, you are forced to learn and practice so many things at once: humility, patience, gratitude and compassion, to name a few. It’s also a surefire way to get someone to slow down and reassess what is important, and we could all use a nudge sometimes.
Bonus! We’re also thankful for… Family. Friends. Our colleagues. Healthcare workers. The San Jose Sharks. Nick Saban’s process. Tua Tagovailoa’s spiral. The Long-Term Capital Market Assumptions. Sturgill Simpson. Coffee. Central Park. Galadriel and Cassian Andor’s backstories. Dogs. Winning records for New York football teams. Harry Kane. Tim Weah. Interesting currency markets. And the bears for letting us buy all these stocks at lower prices.
Above all, wishing you and yours a happy holiday season.
All market and economic data as of November 23, 2022 and sourced from Bloomberg and FactSet unless otherwise stated.
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