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It's What You See That Matters

September 30, 2022 -- Believe it or not, stock market charts were trending positive for more than half of 2022’s third quarter. The S&P 500 index returned 17.7% with dividends from mid-June until August 26, when Federal Reserve Chairman Jerome Powell affirmed plans to continue raising interest rates without more evidence that inflation is cooling. Before Powell’s August remarks, investors’ hopes (and markets) had been lifted by early signs of slowing inflation. Powell essentially said, “Hold your horses, we’re not there yet.” 


Uncertainty in the stock market and in the broader U.S. economy continued as the third quarter of 2022 drew to a close today. Inflation, as reported in mid-September, continued to ease but a definite cooling trend has yet to be confirmed. The Federal Reserve announced a third consecutive 0.75 percentage point interest rate increase on the heels of September’s inflation report. And the Fed’s latest interest rate hike was coupled with a message that rates may be heading higher for longer than anticipated – until the Fed confirms its job is done and begins to take its foot off the economic system “brakes.” 


Thus, the S&P 500 index ended the third quarter at 3,586, a contraction of approximately 25% year to date. Charter Oak’s advisors understand that, for some, it will be painful to look at third quarter statements, especially after the past 2 years of market performance – where the S&P 500 provided 24% annualized returns from 2019-2021 and our diversified client accounts benefited from that growth. 


However, we firmly believe these interest rate hikes are a necessary antidote to taming inflation, which remains near its highest rate in 40 years. And there is likely to be continued pain before the stock market trajectory turns back toward its long-term positive average, inflation settles, and account balances recover. 


In the meantime, we invite you to look out for signs that the Fed’s job is working, which we expect are just around the corner. When you start to see headlines regarding the consumer-price index (“CPI,” one of the most popular measures of inflation) declining, unemployment rates increasing, home prices declining (that is happening now), you will know that a market recovery is about to occur – or may already be in process. 


Until then, we’ll remind our readers of the S&P 500’s historic and bumpy long-term 10% average and of the following facts: 


  • U.S. Gross Domestic Product per capita (a broad measure of a country’s economic health by population) has increased 140% since 1969
  • The S&P 500 Index is up about 40 times since 1969 (nine recessions later)
  • The cash dividend on the S&P 500 index is up 20 times since 1969, and (in comparison) inflation is up a little more than 8 times over that same time period


So, please step back for a moment and refer to the quote atop this writing and remember, you get to choose the lens through which you see the world. Are you focusing on the long-term rewards provided to the goal-focused, plan-driven investor or are you allowing the news headlines and fear to infect your psyche and change your outcomes? 


While it is easy to get caught up in the current uncertainty and proclaim, “this time is different” (often referred to as the four most costly words in investing). We’ll remind our readers that every economically uncertain time in the past has felt “different.” The COVID recession looked nothing like the ’08-’09 Global Financial Crisis, which looked nothing like the great oil-shock recessions of the 1970s … yet they were all temporary. And after each challenging time, economic growth resumed its upward course. 


We at Charter Oak acknowledge and understand the very real emotions some of our clients are feeling in these uncertain times. These emotions, if gone unchecked and not attended to productively, can disrupt or derail an otherwise successful long-term plan. 


So, we invite you to join us in more perspective taking, in acknowledging and connecting with whatever emotions you may be feeling and then shifting your perspective to the bigger picture and to things that matter even more than your current net worth – your health, your family, your friends, your passions. The things that make you feel alive and bring you joy. 


Thank you for placing your trust and confidence in us. We are grateful to guide you and we look forward to connecting at our next meeting. Finally, we send our most sincere support to our readers whose lives or whose loved ones’ lives have been affected by this week’s hurricane.