ON THE MONEY: Hoping for the best while preparing for the worst

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By John Grace

Contributing Columnist

Once upon a time, investors believed that January set the tone for the year.

If that’s so, with the S&P 500 down 5.3% the first month, 2022 may look a lot like the cartoon characters, Wily E. Coyote and the Road Runner screaming in mid-air, “How low can we go?”

January 2022 was “the worst monthly performance since March 2020, which brought stomach-churning drops in the early days of the pandemic,” according to the New York Times.

As investors recalculate their assumptions about markets and the economy, over the past two years the market has spurned the dark clouds on the horizon. Stocks soared to new highs from the early pandemic declines and “are now up more than 90% from their 2020 low,” according to The Times. Millennials along with Baby Boomers feared missing out on what appeared to be unstoppable gains, especially in risky unknown companies and technology stocks. As we have discussed, buying the dips can be hazardous to your wealth.

Some of the largest swings were experienced by technology companies and the NASDAQ fell by as much as 18.5% from the Nov. 19, 2021 high and over 16% for the first month, again according to The Times.

No one can predict the future and this observer is fond of saying, “It’s not about the prediction, it’s all about the preparation,” but there are some forecasters who are willing to put in print what they are seeing. On Jan. 18, HS Dent Publishing told members and subscribers to watch to see how the S&P 500 closed on that day. If it was 4,600 or above, we’re off to the races.

But if the largest stock index closed below 4,600, watch out below. So far, investors have yet to see 4,600 again on the S&P 500.

Dent Publishing put it like this: If the S&P 500 can’t break above the 4,600 bottom channel line, it could see a retest of the March 2020 COVID lows and “the beginning of a crash of our lifetimes.” Dent Publishing asserts the market may bounce around a bit, but be not surprised to see stock losses of 50% or more in the near term.

Some loved ones and friends and I enjoyed a recent comedy show at a large theater. I made a point of showing everyone at our table where the emergency exits were located on the left and the right side of our seating area.

Thankfully there was no emergency that caused the audience to evacuate quickly. Since hope is not a strategy, wherever you are, it always makes sense to prepare for the good, the bad and the unforeseen.

If you would, allow me to put this analogy to work with your investment strategies. Please answer this question: What strategies have you put in place to keep your assets intact, instead of being handed to you in a debacle? Based on how things appear to be unfolding at this time, the time is now to establish your exit strategies.

John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

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