Anatomy of This Bear Market

In this episode of Financial Clarity for Doctors, Corey and Rachelle chat about the whirlwind year we have had in the stock market so far.  It’s easy to look back and explain stock market movement in hindsight, but much harder to predict in advance.  But sometimes understanding the “why”, can help you avoid making poor choices – like selling when your portfolio is down 25%.  Listen for a little bit of context.

Why is the stock market down?

• Why is the stock market down?
  • The dynamic duo – inflation and interest rates
    • To try to bring inflation down, the Federal Reserve raises the federal funds rate, which leads to higher interest rates across the board
    • Stock prices go down, because the market thinks it will be harder for companies to make a profit with rates higher, but also because higher rates can lead to a decrease in jobs and/or wages
  • Geopolitical risk
    • International conflict increases energy prices, and creates some fear in the stock market, which can lead to some indexes declining
    • Affects international and emerging markets stock pricing more than domestic stock
  • Bottom line, part of this is the stock market trying to predict things that have not happened yet
• What is down? – Everything, but in different ways
  • Bonds are down, but not as much as stocks
  • Domestic stocks are down, with growth companies and small companies being hit harder than the tried-and-true big companies
  • Developed international and emerging markets are down more than the aggregate domestic stock index
  • This is why you want to be diversified. A well-diversified portfolio is still down, but less than if you were to double down on some of the higher risk/potentially higher return indexes

Keep in mind that nobody knows what will happen next in the stock market.  Just because someone has been correct in the past, does not mean they will be in the future.  If you are a long-term investor, it is important to stay focused on your long-term goals.  Generally, that means being consistent, and not reacting too much to short-term performance.

For more financial planning tips from Corey and Rachelle, find them on social media!
LinkedIn: @CoreyJanoff and @RachelleVanderzanden; Instagram: @CoreyJanoff and @VanderzandenRachelle; and Twitter: @CoreyJanoffCFP and @RachelleFinance