July 2022

Some Things to Remember When the Market is Tough

When the markets are going well, it can be easy to forget that over time they are cyclical. And right now, we are in a down cycle. In fact, this is the worst first half for the Standard and Poor's 500 in more than 50 years.

This can be disconcerting or even downright scary. But consider: The S&P 500 opened on Jan. 1, 2020 at 3257.88. By March 23, 2020, when the impact of the COVID-19 pandemic was becoming more clear, it was down to 2237.40. Then it moved in a mostly upward direction through 2021, opening on Jan. 3, 2022 at 4796.56. Now, it is in a decline – though it is still above its open in January 2020, and far above its low in March of that year.

Many of the issues to which the market is reacting are related to the pandemic and government efforts to reduce the pandemic's influence on the economy. Unemployment soared early in the pandemic, as companies closed and/or sent their workers home. In order to help cushion that blow, the federal government offered stimulus payments to help workers remain in their homes and feed their families. Many people who were working remotely banked those payments, since there was relatively little they could spend them on.

As people developed immunity by being vaccinated or from having had the virus and as better treatment options emerged, people began to go back to work, and unemployment fell. Now some companies are having trouble getting the workers they need to keep their businesses running.

While people were largely at home early in the pandemic, they did not buy as many things. You were not going to risk your life for a new dress or pair of shoes, especially since you probably were not going places you would need to wear them. So when people began to feel safer getting out, many of them wanted to go shopping. But the inventory was not able to catch up.

Similarly, people had been reluctant to move during the worst of the pandemic. Many just hunkered down in their existing home. But after being stuck at home for months, many people wanted more space or a change of scenery. And that, along with low interest rates, drove a home-buying spree.

And these things were happening not just in the U.S., but all over the world. After months of contraction of manufacturing and retail shopping and travel, people wanted to go and buy and do things. Supply – of goods, houses, cars, etc. – could not keep up with demand. Add in natural disasters and things like avian flu, which caused the culling of millions of chickens and turkeys (and eggs), and the war in Ukraine, which caused a huge dip in the availability of oil and a resulting spike in gas prices, and you have economic uncertainty.

It is important to remember that these issues are being addressed. The Fed is working to control inflation. The government is working to ease the gas crunch. And companies are scrambling to find employees and components to ramp up manufacturing again.

As a nation and as a global economy, we have been here before. The last time the S&P performed like this, the index lost 21% in the first half of 1970. In the second half, though, it gained 26.5%. The companies that make up the markets are largely sound, and they are prepared to benefit when the tide turns again.

Finally, focus on the long-term rather than the day-to-day or hour-to hour movement of a particular index. At any time, but especially at times like these, you should have a long-term investment strategy that is based on sound principles and your tolerance for risk.

At Peachtree Investment Partners, we believe in investing in companies that have proven strategies and a track record of success. We invest mainly in large American companies that have strong leaders with the experience and foresight to recognize and adapt to whatever happens. We also look for companies with a good return on investment and a long history of consistency in revenue and earnings growth.

We believe in stocks that pay dividends. Over time, reinvested dividends can have a major impact on your portfolio growth. And dividend income means your return does not depend fully on an increase – or a decrease – in stock price.

We know these are difficult times, and we are happy to talk with you about any concerns you have about your portfolio or the economy at large, so feel free to reach out. And enjoy the rest of the summer.

Garry K. Schaefer
July 19, 2022

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