• Bernhardt Wealth Management

Some Perspectives on the Current Market Downturn

By now you know that market timers and traders were spooked once again, causing a downward ripple across the US investment markets. It’s not easy to tell what startled them this time. The financial press told us that the reversal was brought on by the release of the August Consumer Price Index report, but one wonders how, at this point, a month-to-month continuation of inflation is much of a surprise. Actually, the report was hardly dramatic; the CPI was up 0.1% from July, after no change from the prior month. Later in the week, markets made another descent, seemingly based on warnings from FedEx about the likelihood of a worldwide recession.

Other signs seem less gloomy. Gas and energy prices have been dropping steadily (a friend in Texas reports sighting prices for regular gasoline below $3.00 per gallon), the employment rate has been consistently high, and economists now believe that higher wages have become the top driver of inflation—which cannot really be bad news for consumer spending and the overall health of the economy. Indeed, retail sales increased 0.3% in August, which took many economists by surprise.


All of that said, the US economy does seem to be experiencing a slowdown that could possibly lead to a recession. The problem for investors, though, is that the stock market tends to be a leading indicator of economic slowdowns, rather than something that follows on. In the past, markets have recovered during recessions as investors start to see the light at the end of the tunnel. This makes predicting future market movements, especially using economic data, virtually impossible.


And, of course, predicting anything based on the startled actions of market timers and active traders is patently impossible. It’s natural to look at equity and fixed-income returns this year and want to stop the bleeding, but that would mean selling and taking the risk that the markets will suddenly “startle” in the opposite direction as traders and market timers experience a sudden fear of missing out on the next upward movement.


The fact is that the most successful investors of the past have consistently preached a buy-and-hold approach, suggesting that people who have the fortitude to stay invested when stocks are on sale tend to come out the other side with higher account balances.

This can be seen on the historical return chart for the S&P 500, which not only shows the steady, incremental rise in stock values due to the daily efforts of millions of workers in tens of thousands of companies, but also how unpredictably the timers and traders can move the markets in the short term. Their impact is volatility and anxiety, not consistent, wealth-building returns.


At Bernhardt Wealth Management, we believe that the most important tenets for long-term financial and investing success are broad diversification, systematic rebalancing, and disciplined adherence to the established plan. Emotional reactions to temporary market movements rarely contribute to long-term wealth-building.


If you have questions about the current state of the markets, the economy, or any other important financial matter, we can provide guidance and advice based on research, not emotion. For more information, click here to read our recent article, “Are We in a Recession Yet? It Depends on Whom You Ask.”


Buen Camino!

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