Stay Attuned to History and Sound Advice
In a 2007 experiment initiated by Washington Post columnist Gene Weingarten, Joshua Bell, a world-renowned violinist, put on a baseball cap and played for 45 minutes as an incognito street performer at a subway station in Washington, D.C. Of the 1,097 passersby, seven stopped to listen, and only one recognized him. He collected $32.17 from his listeners, plus another $20 from the one who recognized him – considerably less than a concert performance three days earlier.
We share this story because often, and especially in times like this, there are countless financial forecasters creating noise and vying for our attention. And all of that noise, much of it of poor quality and content, can distract us from the real information or clear sounds of someone like Joshua Bell, a seasoned professional whose talents landed him on stage at Carnegie Hall at age 17.
As our clients know, markets are absorbing the Federal Reserve’s commitment to driving down inflation and slowing the economy. The Fed is primarily doing this by raising the Fed Funds rate, the short-term interest rate it controls. The Fed funds rate stood at near zero a few months ago, and as of last Wednesday, the Fed raised its rate to the 1 percent range. We expect the Fed to succeed in curbing inflation and settling our economy back down to more stable growth levels, which will ultimately benefit all of us and set the stage for a new period of growth and expansion.
This economic and market shift is not new, it is not different, and it is not unprecedented. Over the last few years, the Fed’s generous monetary policies have been lifting financial markets and guiding us out of the world pandemic, with remnants of the 2008 banking crisis still in tow. Over that time, markets performed well – stocks rose, and investors benefited. We are currently living through the process of dialing back some of those returns. This is a necessary step to resetting our financial foundation. The Fed is working hard to address our high inflationary environment, they know how to do this, and we expect they will succeed.
“Read fewer forecasts and more history.” – Morgan Housel
And so, to help put things in perspective (and to provide concert violin-like clarity) here are a few historical facts (sounds) for you:
- Since January 1, 1980 (508 months) we have witnessed six periods of economic decline, an average of one every seven years
- The market declined during 58 of those months, approximately 10% of the time.
- The market grew 450 of those months, approximately 90% of the time.
Thus, the U.S. economy has been expanding nearly 90 percent of the months since January 1, 1980.
So, as challenging as it may be to look at your current account values, we urge you to hear the quality and see the beauty of sound advice. Keep a long-term, goal-focused perspective. Stay the course and even embrace the Fed’s recent actions, because of the opportunities for growth once inflation is curbed.
We have been actively managing your portfolios and taking advantage of what we know history tells us. This too will pass, and the odds are strong that you will do well by staying the course. Ignore the noise, stop and listen to the street performer (or smell the lilacs as they start to bloom).
At Charter Oak it is our pleasure and privilege to serve you, and we welcome your thoughts and questions as we continue to be your guide.