Is The Market About To Crash? Ep. 82

Jim Stack said, “The parallels we have today are historically very, very concerning. The current froth is the icing on the cake, and when you look through it, you see a lot of other underlying issues.” 

The article began by saying, “Despite a steep 30% market correction last year, the longest bull market on record has helped the S&P 500 surge nearly 300% over the past ten years—roughly in line with the growth in the ten years preceding the dot—com crash in 2000, after which stocks plunged 40% over two years.” 

A  risk factor is how the government will unwind its bond purchasing program down. The government began buying bonds and equities and lowered interest rates to help the economy combat COVID-19, and there has been much debate as to what the Federal Reserve will do. They have penciled in three interest rate increases for 2022.

Hindsight is twenty-twenty and many people hold the view that the government began stimulating the economy too much in 2020 and it has accelerated inflation. We are feeling the effects now on things like food, gas, and basic services. Figuring out how to lessen the inflationary impact will be on the government’s priority list.

It’s possible that since the market tends to pre-price changes ahead of time that the interest rate hikes won’t have much of an impact. At least that’s what the government is hoping. It’s possible that the market continues up and we don’t see major problems in 2022. Keep in mind, if this is the case, I believe inflationary pressure will persist. That’s why it’s imperative to not sit on cash.

There are two main reasons to not sit on excessive cash. We define excessive cash as more than one year of bill paying money.

If we hold large amounts of cash, we are losing purchasing power. When inflation is two percent, this is not felt as easily. When it’s six to ten percent it is going to be felt.

The second reason is nobody knows what will happen. Remember, after the 2008 correction, the government used similar measures as they are using now. The methods were slightly different, but some market commentators from 2010 to 2019 were calling for a market crash that did not materialize. If we held cash through this period, we significantly hurt ourselves. There are ways to be invested and only experience gains if there is a concern.

There is a difference between gambling and taking investment risk. With a well thought approach, the risk can be lessened in your portfolio. I would be happy to discuss how we help our clients mitigate risk.  Call our office at 864.641.7955 to learn more. 

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