These are the kind of days Warren Buffett lives for.
U.S. stocks are plunging to fresh lows for the year as a bear-market rally from their previous lows in late May gets wiped away.
Persistent high inflation marked by surging energy prices, ongoing supply chain disruptions, and a global food crisis thanks to Russia’s invasion of Ukraine are among the pressures weighing on markets.
And then there’s the Fed.
With signs that inflation is accelerating rather than fading, policy makers are poised to raise U.S. interest rates at least half a point, with some speculating on a 75 basis point rise.
The big names that led the bull market for years are being humbled. The so-called FAANG stocks are all well off their highs from late 2021, none more so than Netflix which has dropped nearly 75% in less than 8 months. Even Apple, which sits on mountains of cash, is growing its services business, and owns the most iconic tech brand ever, is off 25% from its peak.
Put another way, Facebook/Meta Platforms (FB) – Get Meta Platforms Inc. Report, Amazon (AMZN) – Get Amazon.com Inc. Report, Apple (AAPL) – Get Apple Inc. Report, Netflix (NFLX) – Get Netflix Inc. Report, and Google (Alphabet (GOOGL) – Get Alphabet Inc. Report) have gone from being the FAANG stocks to being the charter members of Icarus Index.
Their combined market-cap losses are dizzying to say the least.
You can tell things are getting bad because financial planner types are sending out “take the long view” emails, reminding people that the trade off for long-term equity gains that outpace other assets is … volatility.
But amid the gloom, there is another shift happening, as no less a market permabull than Wharton finance professor Jeremy Siegel is touting new opportunities.
Siegel, who is generally bullish on stocks, isn’t giving up hope now. “Hold in there,” he told CNBC. “If you got cash, begin to employ it. You won’t be sorry a year from now.”
And that’s really the point.
If after years of admonishments not to try to time the market, you still insist on doing so, well, there’s not much hope. But if you’re sanguine, and patient and avoid panic, you’ll be OK.
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“Stick with it,” the argument goes, because if you miss the top 10, 20, or 50 up days in any given decade your returns will be MUCH smaller.
Put another way, if you want the Florida sunshine, you’ll have to put up with an occasional hurricane.
If you’re really having a hard time, then the instinct to just stop looking at your statements may actually be a good one. That’s because it will keep you from wanting to do something at precisely the wrong time.
Nobody knows when or where the bottom will be.
It’s certainly possible we’re still a long way from it. But, as Siegel argues, we’re getting closer.
And history strongly suggests that there will be a bottom eventually and that the markets are not going to zero.
To prove the point, Putnam recently offered a selection of historic events that sent the markets into conniption fits but which eventually worked themselves out.
Consider the attack on Pearl Harbor.
In the three days immediately after the Sunday morning assault, the U.S. market fell 6.9%, according to Putnam data. Yet a month later it had rebounded 4.5% and a year later was up 16%.
The 1987 market crash knocked 31.5% off the S&P 500 over the course of that bleak October. Yet over the next decade stocks powered into a massive bull market that prompted Fed Chairman Alan Greenspan to coin his famous, if early, phrase “irrational exuberance.”
The financial crisis in the fall of 2008 was even more unnerving, knocking 39.1% off the S&P 500 before eventually spawning the longest and strongest post-war bull market ever.
“By staying invested during crises — or by investing during a crisis to take advantage of stock market valuations — investors can keep their portfolios on track in pursuit of their long-term goals,” Putnam advisers wrote in the note.
So, if current gyrations have you truly worried, it would perhaps be well to remember that in the long run, everything is a short-term event.
Tom Bemis is West Coast Editor at TheStreet.com.