Lexicon Financial Group Weekly Update 

Monday, May 16, 2022


Looking Back

In high school gym class, we had to perform a “burpee”. Essentially, you jump as high as you can, land and then immediately fall to the floor where you perform a pushup, get up, and do it all over again. It looks like this:

Doing one or two is relatively easy. Doing them over and over again is downright exhausting.

Welcome to investing in 2022.

Last week we saw markets continue to lose ground, only to have them lurch forward on Friday, recovering most of the losses from the week. Up, down, down, up. Unfortunately for investors, there has been more down than up in the last four months.

Individual stocks that were once darlings of the investment industry have fallen harder this year than most. As of May 13, the much-vaulted FAANG stocks - Facebook (now Meta), Amazon, Apple, Netflix and Google (Alphabet) - have fallen roughly 37% since the start of the year. These were some of the stocks that propelled the market forward in 2020. Up, down, up, down.

 

Looking Around

Market declines are not to be taken lightly, but we also recognize that they are a part of the cycle of investing. Diversification helps avoid catastrophic losses – the kind you can’t recover from.

Take for example the news out of the crypto space last week on the collapse of a stablecoin called TerraUSD and its sister currency Luna. Stablecoins are cryptocurrencies specifically designed so that their price is more stable. The TerraUSD coin had its value pegged to the US dollar. In theory, this made it more “stable” than other cryptocurrencies that were freely trading. Except it wasn’t. Plenty has been written on this subject, but essentially investors in TerraUSD, which at one point was among the top ten most valuable cryptocurrencies, saw the value of their investment drop over 90% in less than a week. Click here to see this decline.

This is not an indictment of cryptocurrency, it’s an observation. Speculative investments can play a role in a portfolio, but over allocating to them is akin to gambling. Most investors are not gamblers.

Financial plans, questionnaires, and investment policy statements are all put in place to help determine the amount of risk appropriate to help clients achieve their unique financial objectives. There are plenty of scenarios and questions about risk and return, yet many only feel risk when markets go down.

For clients who have been investing for some time, it is a useful reminder that markets do not move in a straight line (up and to the right) forever. It feels different this time because it is different. In 2020, markets fell because of the COVID-19 pandemic. In December 2018, markets fell almost 9% due to a slowing economy and an intensifying trade war between the US and China. In 2015, markets were down because… does anybody remember? (It was slowing growth in China and the Greek debt default.)

Our colleague Nadeem Kassam, Head of Investment Strategy at Raymond James Ltd. recently wrote: “While much of the headlines remain concentrated on a doom and gloom outcome or on the many worries/uncertainties ahead…since the 1980s, when the S&P 500 Index entered correction territory or sold off by 10% or more, the returns 1year & 2year after the market hit a low was on average +25% and +40%, respectively.”

 

Looking Beyond

We routinely work with our colleagues as well as external investment management firms to understand their views of the markets. We conduct our own research to identify themes and trends that we may be able to explore for the benefit of clients. This may be directly related to their investment portfolio, but equally it could be related to financial planning, tax, estate or insurance issues.

Each week, we review not only the underlying investment in each client portfolio, but we also participate in strategic discussions with other portfolio managers from within the Raymond James Investment Counsel network. Our work is supported by the insight, research, and information provided to us by Raymond James. We feel that our network and access to high quality tax, estate, and planning professionals is unrivaled in the industry. We also offer a robust set of trust and estate planning services for clients that require them.

We’re here to help. To listen. And to adjust portfolios if needed.

 

Further Reading

Markets & Investing – Raymond James

What is Stablecoin?

A History of U.S. Bear Markets and Their Recoveries

 

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.

 

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