Rollercoaster markets don’t have to take you for a ride
Paul Fain, CFP®
It is Disney World’s 50th anniversary. If your investment portfolio was a Disney ride, what would it be? Maybe Mr. Toad’s Wild Ride or Space Mountain?
Despite the bumpy ride, most every theme park ride ends up where it started. In the third quarter of 2021, U.S. stock investors had a similar experience. The market posted 19 new highs before falling back to end up where it had been three months earlier. Still, the widely-quoted S&P 500 index of large company stocks has risen 15.92% this year (as of Sept. 30). After years of trailing other stock categories, small cap value stocks are also providing some thrills this year, up 25%. Some rides are worth the wait.
Broadly, we are seeing positive year-to-date returns in most stock categories. However, there has been as much unpredictability as being buffeted around in the dark on Space Mountain’s roller coaster. For instance, did you know that 91% of the S&P companies experienced a correction of at least 10% this year, with the average being 17%? And, 98% of the companies in the Russell 2000 (small company index) have experienced a correction of 28%. As Charles Schwab’s Chief Investment Strategist, Liz Ann Sonders, describes it: There are significant “rotational corrections” occurring in the various sectors of the economy (in other words, not correcting all at once).
Not all theme park rides, or economic data points, are amusing (you should see me after riding the spinning tea cups). According to a recent Blackrock report, “This year’s surge (in inflation) is driven by a major supply shock: the vaccine-driven restart of economic activity from the pandemic’s shutdowns. Producers have struggled to meet resurgent demand, clogged ports have increased shipping costs, and surging commodities have added to price pressures.”
While I was trying to hold down my lunch, my children always loved the spinning tea cups. Blackrock, the multi-national investment management corporation, also seems undeterred: “Economic activity is increasing briskly and has room to run.”
In my opinion, bond investments are much like Mr. Toad’s Wild Ride, neither is really that wild. Both are designed for everyone and both are fairly sedate. Total returns (price changes plus interest rate) for bond funds have been neutral to slightly negative. For most investors, bond investing is not positioned to provide significant gains (low risk, low return) but are used to smooth the ride in a diversified portfolio.
A final Disney note, according to one travel website, Disney’s top-rated park is Tokyo DisneySea. Did you know that Japan was the best performing global stock market in the third quarter? It’s a small world after all.
Keep investing. Stay invested. Enjoy the ride, including the slow, the fast, the highs and the lows.
This article was originally published in the Knox News Sentinel on October 22, 2021