September’s Mini-Meltdown

October 10, 2022

In a September Wealthy Behavior podcast, Chief Investment Officer Bob Weisse and I explained how stocks were down 5% since mid-August after a strong July partly as a reaction to Fed Chair Powell’s Jackson Hole speech. Unfortunately, that weakness continued last month with September’s mini-meltdown. U.S. and Global stocks were down over 11%, and U.S. bonds were down more than 5% since Jackson Hole.

Stock and Bond Returns Since Jackson Hole Speech showing the magnitude of September's mini-meltdown

Bob and I discussed this and more in our latest episode of Wealthy Behavior.

October Market Update: Is the Fed Overshooting?

While we see signs of inflation moderating, and even some housing deflation, the Fed isn’t relenting on its tight monetary policy. This has caused some big-time investors to complain. I previously shared examples of those critiques from Jeremy Siegel and Jeffrey Gundlach here and here. The gist of their argument is that the Fed is going too far now to fix a problem that they had previously minimized when they called inflation transitory last year.

Bob agrees with the critiques. He sees the inflation numbers headed in the right direction.

We also discussed how Fed bashing is not new, and in many instances, it’s well-deserved:

  • Greenspan kept rates low for too long after the mild 2001 recession, and Fed policy during his time as Chair was a major contributor to the Great Financial Crisis (GFC). The maestro nickname didn’t last.
  • Inflation concerns persisted well into 2008, and the Fed had no clue initially about the depth of the crisis we would soon face.
  • Kept rates at zero for too long after the GFC
  • Being wrong about transitory inflation coming out of the pandemic recession.

It’s tough for the Fed to stick the landing with monetary policy, and mistakes happen. Everyone else’s crystal ball stinks too. The solace for investors is that the Fed has the tools to fix mistakes, and overreacting to this September mini-meltdown would be unwarranted.

Bonds

We also discussed how bonds are on track for their worst-year ever. By far.

Intra-year bond market declines

Bob shared why there is room for optimism given this year’s performance. Yields are higher than they have been in over a decade so future return expectations are stronger for bond holders.

Ten-Year Treasury Yield 2012 - 2022

Private Credit

In a prior episode, Bob and I highlighted an area of the market that is doing well in 2022: Real Assets Are Making Money This Year. Bob shared thoughts on another investment that has seen positive returns YTD (private credit) and how it can fit into a portfolio.

Our Thoughts for Investors Today

What should you do today about this September mini-meltdown?

For Bob, the answer is easy. Have a plan and stick to it.

If you’re an accumulator, you need to be adding to your portfolio.

If you’re living off your assets, believe in diversification and understand a healthy plan can withstand bear markets.

For those that don’t have a plan or a clear investment strategy, find out how we can help you here.

And one last simple piece of advice when stuck in a bear market – Just Don’t Watch!

Finally…

Be sure to listen to the entire episode as Bob and I also discussed:

  • That we will see a recession, but why we think it’ll be much tamer than 2008 or 2020
  • The level of fear and volatility in the market today compared to other big downturns
  • What’s going on in the UK and if investors should be worried about it
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October Market Update: Is the Fed Overshooting?

Available through link in title.