Monday Market Update – May 16

May 16, 2022

Forefront’s Monday Market Update

The Rope a Dope 

When I was in college, my roommates and I would regularly debate the dollar amount each of us would require to get into a boxing ring with Mike Tyson for 1 round. The consensus was 25 million dollars, which seems low. If you are an investor over the past 7 weeks, it might feel like you just went a round with Tyson.

Ali vs Foreman 

When Muhammad Ali faced George Foreman on October 30th, 1974 in Zaire, we saw a risky boxing strategy come out called the Rope a Dope.

Starting in the 2nd round, Ali would lay up on the ropes allowing Foreman to throw punches wildly, and while doing damage, none of them was the crushing blow. Foreman tired himself out and lost steam, which was what Ali was waiting for. Ali won the fight via a knockout in the 8th round.

Investing in the stock market right now has most of us employing a Rope a Dope strategy, unless of course you entered this period of time in the stock market without a plan. For those of us with a plan, we know that broad diversification helps ensure your portfolio from the knockout blow that many feel with heavily over weight singular stock names.

We are all employing the Rope a Dope strategy as we weather the blows that the markets have thrown at us over the past few weeksour plans, and emotions, bending, but never breaking. We don’t need to throw wild haymakers, or do anything but let the market tire itself out, and start to pick off opportunities. Before that can happen though, we have to get past the emotional point that many of us are going to feel on this Monday, the first trading day after an absolute wash out of a week.

Many of you are at the point where you are telling yourselves, “Maybe this one is different, maybe the market just won’t recover.” Take a look at the chart below. Not recovering, is not a thing.

Happens Every Time 

I started my career right before the financial and housing crash and have weathered bear markets and corrections nearly ten times since then. 2008 and 2009 speak for themselves, but how quickly we forget the European debt crisis of 2011 and the fear of a double dip recession. Although we have had a few corrections, we didn’t see another bear market until 2018 which appropriately bottomed out on Christmas Eve.

As we go through this bear market though, absorbing blows that hurt, but don’t knock us down, we are going to see the same thing we see in every bear market.

On CNBC this past Friday a talking head declared that “buy and hold is dead!” Wouldn’t it be great if buy and hold only required you to hold when the market was going up? While it would be nice, that just isn’t how it works, in fact, the hold part is just as important during the difficult times as it is during the good times. Ali didn’t get annoyed and change his strategy because Foreman wasn’t getting tired fast enough. He instead stayed patient, and was a champion because of that.

We are going to see an asset class, or a sector not react, or behave the way it has in the past which will lead to someone on TV declaring that diversification is dead! No one ever expected the housing market to collapse on a national basis the way it did in 2008 and that we would never recover. I passed an open house this weekend that needed a police officer there so the line to get in didn’t spill over into the street and block traffic.

This time around the asset class that is behaving abnormally is bonds. So, is diversification dead, or do we have an abnormal market due to a financial crash, and pandemic that has kept interest rates far too low, for far too long? Logic will tell you this is the answer, but emotions will tell us that bonds are dead, diversification is dead, and the market will never recover. Like housing in 2008, right?

So What? 

So how does this impact all of you?

  • Less is more when it comes to long term investing.
  • Success moving forward will be dictated by your behavior during times of volatility, not your intelligence.

Stock market calendar this week:

8:30 AM Empire state manufacturing index
8:30 AM Retail sales
8:30 AM Retail sales excluding vehicles
9:15 AM Industrial production index
9:15 AM Capacity utilization
10:00 AM NAHB home builders’ index
10:00 AM Business inventories (revision)
8:30 AM Building permits (SAAR)
8:30 AM Housing starts (SAAR)
8:30 AM Initial jobless claims
8:30 AM Continuing jobless claims
8:30 AM Philadelphia Fed manufacturing index
10:00 AM Existing home sales (SAAR)
10:00 AM Leading economic indicators
None scheduled

Most anticipated earnings for this week:

About Amit: I am a first generation American, the son of a working-class Indian family, and I lived through my parents’ struggle to find their place in this country, to put down roots that would sustain them as well as their children in a new land. As they encouraged me to excel in school and fostered my hobbies and interests, I was keenly aware of the dynamic between them. I understood that there was a difference between where they came from individually and where we were now. They worked hard in their individual capacities, but they weren’t always on the same page about financial issues – and that can make or break a family’s future. I didn’t know it at the time, but this laid the groundwork for my passion towards financial services and helping families succeed.