Easing Client Anxiety From the 'Econotalk' Maelstrom
And regarding the tech investing, it’s important to remember that the Nasdaq is plagued with profitless companies with astronomical P/Es. Instead of the Nasdaq, consider selecting what I call TARP (tech at a reasonable price) stocks, primarily mature tech stocks with low-risk profiles and reasonable P/Es. Even after the early-2023 rally had faded as of mid-March, many TARP stocks were maintaining strong gains year to date. Also, the current shift from growth to value can be exploited by identifying promising companies in the health care, financial and industrial sectors.
Don’t succumb to the false allure of short-term corporate bonds and Treasurys.
Or, at least, don’t rely on them too heavily. There’s a lot of fawning over bonds and CDs these days now that they’re actually paying interest again. Yet compared with the likely long-term returns of the stock market, this really isn’t investing; it’s more like saving.
For portfolio ballast, an increased allocation to perennial-income-generating municipal bonds (with their exemption from federal tax) makes sense because their after-tax yields are usually higher than those of corporate bonds. The returns of corporates and of course Treasurys are further below current inflation than municipals and well-chosen preferred stocks. And bonds’ increasing correlation with stocks alters the classic low-risk complexion of even Treasurys.
CDs are virtually risk-free, but as with bonds, there’s the cost of missed opportunities because of the greater average long-term returns of stocks. Moreover, the time for fleeing to non-stock investments is on the way into a bear market, not on the way out.
Don’t let the ‘R’ word jaundice your view of the market’s potential.
If a recession sets in this year — and there are many compelling reasons to think it won’t — few economists worth their salt expect it to disrupt the market much.
And the market may finish 2023 quite strong. Since 1950, after every midterm election year when the market declined, the S&P 500 posted double-digit returns the following year. If the prospects for this history to repeat or even rhyme this year strike you as less than likely, consider the factors driving the upside of volatility lately.
Although rate hikes are continuing (for now), bulls are poised nonetheless to act on any indicators of declining inflation potentially leading to even just a pause in Fed rate hikes. The patterns of this volatility show that the bulls are bucking at the corral fence, straining to break out running to propel a much-improved second half for 2023.
To hear many of the negative market views rooted in the prevailing econotalk, you’d think that the market had never descended from the long bull that started 14 years ago and ended in early 2022 — that it’s still flying high and due for a fall. These voices are forgetting that stock prices are still depressed from the bear, making a precipitous drop unlikely.
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Dave Sheaff Gilreath, CFP, is a founding principal and CIO of Innovative Portfolios, an institutional money management firm, and Sheaff Brock Investment Advisors. Based in Indianapolis, the firms manage assets of about $1.3 billion.
