{"id":2108,"date":"2022-05-19T18:52:36","date_gmt":"2022-05-19T18:52:36","guid":{"rendered":"https:\/\/investspectrum.com\/uma\/?p=2108"},"modified":"2022-05-19T19:31:22","modified_gmt":"2022-05-19T19:31:22","slug":"a-new-normal","status":"publish","type":"post","link":"https:\/\/investspectrum.com\/uma\/a-new-normal\/","title":{"rendered":"A New Normal?"},"content":{"rendered":"

What is normal?<\/strong>\u00a0<\/p>\n

It seems like the markets are always moving from one crisis to the next and trying to define the \u201cnew normal\u201d.\u00a0 Perhaps we can blame the media for promoting drama in attempts to attract viewers.\u00a0 That may occasionally be true but no doubt that legitimate societal stresses are commonplace: wars, high profile corporate or even municipal bankruptcies, terrorist attacks, and natural disasters are just a few reoccurring events or conditions.\u00a0 AND YET\u2026markets have historically rallied back to eventually make new highs.<\/p>\n

There are numerous examples on the internet of historical charts showing notable world events and the market\u2019s reaction in price and duration.\u00a0<\/p>\n

\"\"<\/a>TradingView is the source of this chart, originally published 7\/4\/21 and is one of the more extensive compilations I have seen.<\/pre>\n
Updating for recent price action (but using the S&P 500 Index), note the significant influences to the recent decline in the chart below.<\/p>\n
\"\"<\/a>Created with TradeStation. \u00a9 TradeStation Technologies, Inc. All rights reserved<\/pre>\n
The objective or bottom line of most articles, blogs, news stories, charts, etcetera that tie negative news to the stock market tends to be a message that investors should be calm and have hope, with a focus on a brighter future.\u00a0 That advice has been correct for 100% of all pullbacks, corrections and bear markets since stocks began trading under the Buttonwood tree in lower Manhattan, and up through early January of this year.\u00a0 That advice may be oversimplistic as the devil may be in the details.<\/p>\n
The Fluidity of Indexes<\/strong><\/p>\n
Historical charts of indexes should be viewed with a grain of salt in that indexes periodically change components and weightings.\u00a0 For example:<\/p>\n
    \n
  • The Dow Jones Industrial Average has removed\/added members 57 times since 1896.<\/li>\n
  • The S&P 500 Index is rebalanced on a quarterly basis.<\/li>\n<\/ul>\n
    A committee establishes criteria and companies are added and subtracted.\u00a0 This is a common practice for indexes.\u00a0 Therefore, index charts most often are strung together performances of individual stock constituents held at that time.\u00a0 The all-time highs made in early January by the S&P 500 Index and the Dow Jones Industrial Average were not set by the same stocks within the indexes during the bear market of 2008.\u00a0 Investors that were holders in those particular stocks during the 2008 bear could have been given hope that the indexes should come back eventually.\u00a0 Well \u2013 the indexes did but perhaps not with the down and out names held by some investors.\u00a0 Is that idea a pitch for indexing, as in, should investors focus on just owning index investments?\u00a0 No, not necessarily. There is a difference, however, between blind faith in a generalized market recovery in futures versus what companies may participate or be left out.<\/p>\n
    Let\u2019s shift focus to why.<\/strong><\/p>\n
    Again, through January of this year, all negative market periods over the last 100+ years have \u201crecovered\u201d.\u00a0 This view is based on understanding and embracing the foundational economic principle that supports capitalism or at least market driven economies \u2013 profit motive.\u00a0 Companies are often started by determined individuals, betting on themselves, looking to enrich their lives which often aligns with the betterment of other lives as well.\u00a0 A lack of product demand and\/or a lack of profit will eventually lead to a company\u2019s failure.\u00a0 In the context of this discussion, investors can choose to be a part of a company\u2019s success or failure through stock ownership.\u00a0 There is an individual and corporate drive to succeed in a free market system.\u00a0<\/p>\n
    Success is often determined on how a company responds to challenges and crisis.\u00a0 New challenges come with each crisis.\u00a0 New solutions are found and assumed to be rewarded.\u00a0 At the onset of the pandemic, the equity markets fell sharply as questions were brought up regarding how the economy would be affected.\u00a0 Generally speaking, the market then moved higher as answers came to light.\u00a0 Again, some companies have not come back but many have and have done so transformed as evolved versions of themselves.\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n
    Now that we have covered topics of optimism, warning, and back to optimism, let\u2019s return to warning.\u00a0 <\/strong><\/p>\n
    The duration and depth of crisis have never been consistent.\u00a0 Exhibiting faith in an eventual recovery is one thing, but it should not be blind faith as the pain of the crisis is endured.\u00a0 Active management of investments, adjusting portfolios to changes in risk is not in opposition to the idea of market recovery.\u00a0 The two can be symbiotic.\u00a0\u00a0 \u00a0<\/p>\n
    As investors, we should not be expecting the market to settle into a \u201cnew normal\u201d.\u00a0 It will never come if defined as an extended period of a \u201clack of concerns\u201d.\u00a0 We must accept that \u201cnormal\u201d is a constant pursuit of new innovations and ideas and we can participate by way of the markets while dodging and parrying the dangers.<\/p>\n
    At Spectrum Financial, we continue to pursue risk adjusted opportunities that the market presents and manage life altering risk for our clients.\u00a0<\/p>\n\n\n
    <\/p>\n","protected":false},"excerpt":{"rendered":"
    What is normal?\u00a0 It seems like the markets are always moving from one crisis to the next and trying to define the \u201cnew normal\u201d.\u00a0 Perhaps we can blame the media for promoting drama in attempts to attract viewers.\u00a0 That may occasionally be true but no doubt that legitimate societal stresses are commonplace: wars, high profile […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[46,77,56],"class_list":["post-2108","post","type-post","status-publish","format-standard","hentry","category-market-research","tag-active-management","tag-manage-risk","tag-volatility"],"_links":{"self":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts\/2108"}],"collection":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/comments?post=2108"}],"version-history":[{"count":14,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts\/2108\/revisions"}],"predecessor-version":[{"id":2130,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts\/2108\/revisions\/2130"}],"wp:attachment":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/media?parent=2108"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/categories?post=2108"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/tags?post=2108"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}