What a difference a couple of days can make! Last Friday, the Dow 30 industrial Average closed down 500 points, closing at a new low for the year. Disappointing, at best. Monday the 3^rd, the same Index closed up over 700 points and Tuesday the 4^th, the Dow climbed over 800 points. That is a rally of over 1500 points in two days! We realize this high level of ups and downs are concerning to investors, so our job is to interpret what this activity means and what is the right approach to get through it.

Unfortunately, the September statements you receive in the next few days will reflect the prices of last Fridays’ low closing price. Know however, that equity prices have rallied significantly since then and the Dow 30 is right now, trading over 30,000 again. Another piece of reassuring news is the fixed Income (bonds) many of us own in our portfolios are beginning to act as a buffer against volatile equity prices, unlike a year ago when bond prices declined significantly along with equities.

Usually, fixed income or bond holdings are positions that we turn to help smooth the ride and LPL believes that this dynamic is in place to do so again moving forward. Now that bond yields are higher, LPL Research thinks the prospects for fixed income have improved. Not only have the income opportunities increased, but LPL also thinks the diversifying properties of bonds has increased as well. Clearly, bond diversification has not worked this year. But, with the Fed committed to staving off continuing inflationary pressure—even at the expense of an economic contraction—LPL thinks bonds have the opportunity to act like bonds again and provide the ballast for equities within a diversified asset allocation. As such, the Strategic and Tactical Asset Allocation Committee at LPL Research has recently voted to neutralize the interest rate sensitivity in our bond portfolios, relative to our indexes, to take advantage of higher yields.

It’s just a fact that throughout history, some of the best performance days in the stock market happen in very close proximity to the worst days. It follows that if you’re trying very hard to avoid the worst days in the market, you’re likely to miss the best ones, too. According to Blackrock, 24 of the 25 worst trading days were within one month of the 25 best trading days. The consequences of missing the best days in the market over a 20-year period are devastating. from January 1, 2000, to December 31, 2019, an individual who invested $100,000 for the entire period—meaning full participation in the tech bubble and the Great Recession—would have accumulated $324,019 by the end of last year. Meanwhile, an investor who missed just ten of the top-performing days—which we know happen in close proximity to the worst days—would have accumulated only $161,706.3. It’s time in the market, not timing the market.

We realize these are not normal times – feel free to contact us with question and/or concerns.

~Mark and Elise.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. All index data from FactSet. This research material has been prepared by LPL Financial LLC. Tracking #1-05334316 (Exp. 10/23).