StonebridgeFOCUS | Heartless Markets

At 7:55 AM on December 7th, 1941, 353 Japanese planes descended upon Pearl Harbor. Widely considered to be one of the more significant and pivotal moments of World War 2, it signaled the official entry of the United States into the hostilities.

The market was up nearly 3% the month of December 1941. The remaining years of the war (1942-1945) yielded the following annual returns, 12.4%, 19.5%, 13.8%, and 30.7%.

In 1972, the United States was in the heat of the Vietnam War, the Watergate scandal broke, and Palestinian terrorists stormed the Olympics, killing two members of the Israeli Olympic team. Nine other Israelis were held hostage as the terrorists bargained for the release of 200 Palestinian prisoners in Israel. The market was up 19% that year.

In 1982, inflation was running high in the middle of a severe recession while fighting continued in the Cold-War era proxy war in Afghanistan, as the Soviet Union was desperately trying to remain in control. The market was up nearly 22% that year.

Then there is 2020. Certainly, still fresh in our minds, we faced one of the worst pandemics in 100 years, Presidential impeachment, and double-digit unemployment. The market closed over 18% in 2020.

Kicking off 2022, stock markets have been in correction territory (10%+ decline) based on a flurry of bad news: geopolitical conflict in Eastern Europe, inflation at 40-year highs, millions of open jobs, and the Federal Reserve ramping up for hiking interest rates. Despite the negative news, financial markets are always reminding us that things can play out in ways we least expect.

If you look throughout history, you find numerous examples where despite overwhelming negative news, the markets didn’t respond, or did exactly opposite of what you’d expect. It’s counterintuitive.

There is no magic 8-ball that will predict how our present circumstances will unfold. One thing we do know, is that human behavior is predictable. Periods of uncertainty lead to fear which produces oversold markets. Markets inevitably recover, and those who weathered the storm are better off than those who jumped ship.

The four most dangerous words in the financial markets are “this time it’s different.” Mark Twain had it right when he said that “history doesn’t repeat, but rhymes.” While we will be faced with different combinations of events and risks, the one constant is human behavior. At Stonebridge, we encourage you to maintain the long-term view and see beyond the chaos.

Thank you for your continued trust and confidence.

Tyler Martin, CFP®, CPWA®