Investment Opportunities During Uncertain Times
It is Summer 2022 and the economy is on its second quarter of negative growth. The market is volatile and world events are bearing on consumers in every way — spending, prices, and investments. Three of our staff sat down to discuss not just the doom and gloom of the current state of the economy, but also the hidden opportunities and silver linings that come along with it.
Get our take on what brought the market to where it is today and what we can do about it now. For this and other discussions related to investing and navigating the market, listen to our podcast Capital Conversations or catch our most recent blog posts here.
Below is a transcript of our most recent Capital Conversations podcast episode, Investment Opportunities During Uncertain Times.
Investment Opportunities During Uncertain Times
Colin Day: Welcome, everyone. Welcome to Correct Capital Wealth Management today. I am Colin Day — Joe Anderson portfolio manager, Michael del Monte assistant portfolio manager. Today we're gonna talk to you a little bit about the economy and a little bit about market performance.
We've been very popular with our clients, with people that we've been having conversations with, in regards to where the market is going, where we've been and where are the opportunities? So I wanted to have our portfolio managers here today because you guys are the authorities — or at least in my eyes — the authorities on this kind of subject.
So, you know, Joe, I'll turn to you first. If we had to think about why we're in the situation that we're in currently, where a lot of doom and gloom, a lot of negativity is out there in commentary, how do you think we got here? If you had to give it to the layman.
Joseph Anderson: Awesome. Well, that's a multifaceted question there, Colin.
You know, really, you have to start back at what happened after the crash in March of 2020 in the pandemic. And what we saw was a huge amount of stimulus come in which propped up the economy, probably more than we really needed. So we had a great last couple of years in the stock market. The S&P 500 was up 20% in both of those years, which rarely happens in the history of our country here — in the history of the stock market — but we pumped so much money into the system to keep businesses alive during COVID.
And then with the stimulus checks too, you know, most people had extra spending money, extra cash, which probably pushed us a little bit too far, too fast in terms of valuations with these companies. And the real underlying cause that we're seeing right now is inflation, which everybody sees. You see it at the gas pump. You see it at the grocery store. You see it at McDonald's where it's tough to get a meal under 10 bucks. So the inflation really started to spook people, and the few ways that you can really combat inflation, you know, are to raise interest rates, slow down the economy, and to stop spending money.
Well, we all know that the government's not historically been good at slowing down on their spending. So we're likely, and as we've seen happen, the federal reserve is really raising rates, trying to cool off the economy. And that really leads to a big fear where there could possibly possibly be a recession.
Generally, when you have really quick interest rates, you have a slow-down to the economy. It's a very delicate balance not to slow it down too much and cause some form of a recession and that's why we're seeing these markets going haywire. The combination of the worry of a recession with the inflationary issues, and then the fact that it probably ran too far, too fast towards the end of last year.
So we have seen the NASDAQ down 30, 35%, the S&P 500 down close to 25%, at the lowest, and a lot of negativity. Some of it's justified. Some of it's not, just like every other time, but that's really how we got here. And now we just have to figure out how to combat it and where we're gonna go next.
Colin Day: Yeah. I found it interesting how I was in a meeting actually with some folks earlier this week and it's hard to define exactly what the issue is because what I found was most people want things nice and simple. As we all want things to be nicely packaged and point a finger at the one thing that “this is what put us into this situation.”
And it's really just a lot of other things that have affected the market in a way where we can't really point to one thing and say, well, it was the war in Ukraine, or it was stimulus. It is really just a combination of just calamitous events that some of us could foresee, others couldn't. And now we're in the situation that we're in right now.
So Michael, if you had to think about: all right, there's a lot of doom and gloom out there and that's how financial media works is that they're not really focusing on the positives. They're mostly focusing on the negative because it keeps you through the commercial breaks. When it comes to all the doom and gloom, you know, we've got all this negative press out there. We've got financial news media just trying to keep through the commercial breaks to tell you about the next bad thing that's about to happen to us.
Michael Del Monte: I think the worst was when the Arizona green teas went. 99 cents to a dollar and a quarter.
Colin Day: That was the worst thing that happened all year, I’m sure.
But where are the positive things? Where are there opportunities when we think about our investors and as we move forward throughout this year, maybe even heading into next year?
Michael Del Monte: So certainly we've seen a lot of doom and gloom. Markets are down basically across all industries, energy being the only industry that's up — at one point up 60% year to date, now back down to about 25, 30%.
It's still positive, but we're seeing a lot of turnover in different industries. A lot of people looking for bottoms, a lot of, just churn. So a lot of areas that we're looking into what we see as inflationary drivers. This could be metals and mining. This could be oil and gas, just areas that we can see that can benefit from these heightened commodity prices.
For example, you know, we're seeing an increase in automobile manufacturing, or starting to see an increase in manufacturing. The semiconductor tightness is starting to loosen up a little bit. We're starting to see semiconductor fabrication plants or “fabs” being initiated across the country. Once Congress can pass the CHIPS bill to help fund these fabs, we should see activity pick up and that will inevitably trickle down to the automobile manufacturers and consumer electronics, amongst other areas.
We're just starting to see a lot of development. We're in the early stages. It's going to be a long-term, five to 10-year play, but we're starting to see the early developments. And as these open up, the demand for these base metals, like copper and steel — those are going to increase, stupendously oil and gas for specialty chemicals, for gasoline, for diesel. That's just going to increase just to put a metric behind that and why oil is so expensive right now. For 2021, demand for oil was about 97 million barrels a day. Production was at 95 million barrels a day. So we were at a 2 million per day deficit. So if you're wondering why at the pump it's four to five bucks per gallon, that's the underlying cause. But yeah, those are the two primary areas. We're starting to see consumer staples create a bottom and that can open up some good opportunities. If we do go into a recession or potentially go into one, you still need to buy toothpaste. You still need those hard items, right?
Colin Day: Your Arizona iced teas.
Joseph Anderson: Some good news out there too, is that it seems like inflation may have peaked from some of the numbers that are coming out. It's obviously not written in stone by any means yet, but that would be a great sign to help us into the second half of this year if that continues.
Yeah. In addition to that, we have an opportunity over the next eight months here to buy a lot of really good companies at huge, huge discounts and that's everybody's goal: to buy a good company at a big discount and hold it for a long time. Ideally. A lot of folks never thought these companies would go down 50, 60, 70%, but some of them have, and some of us might remember the tech, you know, the.com bubble.
I wasn’t practicing back then but have done a lot of research on it. And if you look at the folks who really made a great return over that 20-year span after, it was the guys who got into Apple, Microsoft, Google that had collapsed with the rest of tech, but they were still great companies in there.
So we're, I think we're gonna have a very similar opportunity coming up here in the next eight months to a year, max. So we're very optimistic long term.
Michael Del Monte: It's like going to Macy's and looking for the deal that's 50% off versus going there and buying it full price or asking for a three X price.
Yeah. You know, personally, I'd rather have the 50% off.
Colin Day: Yes. I think we can all agree on that. So I'll start with Joe first. If there's one thing that you can communicate to investors right now as we go through this tumultuous time, you know, what's the one thing that you would like to communicate to them so that they either stay the course or make changes?
How do you think you might want to communicate with somebody right now when it comes to their investments?
Joseph Anderson: Well, the most important thing as you're aware of, Colin, is to make sure that you're still working and in touch with your financial advisor. He or she is guiding you through your process.
You know, they put you on a track for a reason. There's a reason you're probably not all invested in stocks and it's for this exact time here. Right? So that you have extra stuff that you can put into the market when the market really falls. The same reason why if you are all in stocks, you might want to stay in there unless you're too uncomfortable or if you're retiring soon.
But again, that's something that I'm not gonna be able to answer. That's what your financial advisor's here for. In addition, don't panic. This happens every four or five years, usually. You get a good pullback, a good collapse on the market. Three or four years later, historically you're always pretty much back to where you were.
So just be patient and talk to your financial advisor would be what I'd say.
Colin Day: Awesome. Michael?
Michael Del Monte: Yeah. You know, just stay calm. Be patient. Let the market do its magic. And as Warren Buffet once said, “Be fearful when others are greedy and greedy when others are fearful.”
Colin Day: It's a great quote to end on.
Thank you, gentlemen. I appreciate your time today. Thanks.
Michael Del Monte: Thank you.
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Market Perspective Mid-June 2022
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