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How to Overcome “The Wall of Worry”

Listen to Best in Wealth Podcast Episode 244

Why are we worried about the world, the economy, the stock market, and our investment accounts? The stock market started the year great. The S&P 500 was up over 10% at the end of the first quarter. But the stock market has dropped steadily in the first 19 days of April.

My business Partner, Brian, wrote an article titled “The Wall of Worry.” In this episode of Best in Wealth, I will cover some of the details of his article and share why family stewards can take a deep breath.

Outline of This Episode

  • [2:29] Why is everyone so worried?
  • [3:52] The market reacted to inflation
  • [9:52] The geopolitical climate 
  • [15:03] What do we know?  

The market reacted to inflation

The financial markets saw a great start in 2024. US stocks raced to almost 10% gains in the first quarter. Things have since been dropping, almost back to where we started. We saw the same pattern in 2023. 

The inflation report released in March reported a 3.5% annual rate—higher than expected. It also likely closed the door on a June interest-rate cut by the Fed. That news made the stock market drop quickly in April. Why? 

The stock market had priced in six interest rate cuts in 2024. But because inflation ticked higher, the expectation has shifted to maybe three cuts. Market participants are clearly worried. 

In June 2022, CPI inflation was at its peak at 9.1%. It’s dropped every quarter since. In June 2023, we were down in the threes. In March, it was 3.5%. When you look at the report, you will see progress. 

Battling inflation is a messy process. We should consider ourselves fortunate that inflation has fallen as much as it has, without a catastrophic event happening in the economy or labor market. We have avoided a recession so far. 

The average rate of inflation over the last 100 years is 3%. Our latest inflation rate was 3.5%. The Fed wants the inflation rate to be 2%. But 3% inflation might be the “new normal.”

The market reacted to the geopolitical climate 

Stocks were up while bonds and oil were down as Brian wrote this article on Monday the 15th. It was the opposite of what we thought would happen. 

What were past reactions to major geopolitical events? They might surprise you:

  1. In the six months following the onset of WWI in 1914, the DOW dropped 30%. The market closed for six months. But it rose more than 88% in the following year—the highest annual return on record.
  2. Hitler invaded Poland on September 1st, 1939, beginning WWII. When the market opened, the DOW rose 10% in a single day. 
  3. The DOW Jones lost 1% and remained calm during the 13 day period of the Cuban Missile Crisis in 1932. 
  4. The stock market opened up at 4.5% the day after JFK was assassinated and gained more than 15% in 1964. 
  5. Stocks fell sharply after the 9/11 attacks, dropping 15% in the two weeks following the tragedy. The economy was already in a deep recession. Within a couple of months, the stock market had gained back all of its losses. 
  6. The US invaded Iraq in March 2003. Stocks rose 2.3% the following day and finished the year with a gain of more than 30%. 

When the geopolitical climate is uncertain, it causes us to feel anxious and can lead to panic. But it rarely pays off to make portfolio changes in reaction to geopolitics. Why? We do not know what is going to happen. 

The more we dwell on it, the more our minds go to worst-case scenarios. While we might be right about our predictions, we could be wrong about how the stock and bond markets will respond. 

What do we know?  

We will likely see market volatility over the coming days, weeks and months. Why? Because the election is coming up! As we digest this new information, we will keep you updated. But remember—your best guard against so much uncertainty is to have an investment policy statement to guide you through the good and the bad. Stay informed but do not allow yourself to be affected. 

Resources Mentioned

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Podcast Disclaimer:

The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.