Unfortunately, despite the existing declines in stock prices, the sharp hit to earnings will mean that stocks will still be expensive. It is almost as if the investing community simply believes that when the Fed “pivots” to neutral, ceasing to reduce its balance sheet and/or refraining from additional rate increases, all will be well. They have yet to price in the genuine possibility of a sharp decrease in earnings, let alone the economy floundering in recession. Many should start looking at investment grade bonds - Treasuries and corporates - yielding 4%-6%. A 2-Year Treasury Note yielding 4.30%? That will not be available next year or the year after. If there are any positives for investors, it would be that bonds have been battered nearly as much as they are likely to be. For another, the hottest real estate markets are experiencing price declines that have not been witnessed since the 2006 housing bubble popped. That would not be accurate either.įor one thing, sales have plummeted such that there is virtually no activity in a 6.5%-7% 30-year mortgage rate environment. Some erroneously believe that home prices are holding up. Not with the Fed’s aggressive monetary policy tightening to fight inflation. In previous stock bears, investment grade bonds diversified the risk of owning equities. Indeed, through the first nine calendar months, the 20% losses rank as the worst in history. The talking heads may be attempting to convey an unfortunate reality for a balanced stock-bond portfolio.
The median stock bear registers -32% from top to bottom. With respect to stock price decline, the S&P 500’s 23%-24% fall from grace has yet to reach average bear market proportions.
Many in the mainstream financial media have been declaring that the current bear is one of the worst in history.
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