Teaching teens to drive is an extended and challenging experience – I’ve done it three times. It’s a lot to learn. The mechanics of what to do with your hands and feet. Feeling how long it takes to brake, remembering things like turn signals and when it’s safe to pull out into traffic. All these things take time to learn before they become second nature – but one of the skills I always try to teach our new drivers is where to look.
New drivers almost always want to focus on where they are and not where they are going. But at highway speeds, where you’re going can come up on you fast. This is especially true when driving around a tight curve. You must learn to look through the curve to navigate it safely and smoothly.
The same is true with the markets. There comes a moment when the direction of the market turns. And just like driving, if you are surprised by the change in direction, it can be startling to you and your passengers. This isn’t just true when markets drop – it works the same way when the decline is coming to an end. The markets will turn back up and we want to keep our heads up and be ready navigate this change smoothly, so we can maintain progress toward our goals.
As we are starting to see lower commodity prices (except gas) and company inventories recover and build, we need to have our heads up and start looking through this turn to see what the exit will look like. Markets will recover, but they might not be the same as they were before. Over the last several years, markets were led by low interest rates that fueled new technology, software companies and many of the “stay home stocks.,” like Zoom and Netflix.
Going forward it looks like we will see more manufacturing, agriculture, banking, healthcare, and infrastructure companies leading the way. And after interest rates peak, we will likely see bonds (both quality and maybe even high-yield bonds) come back into portfolios. We used to call these types of companies “value stocks,” and they have been out of favor since the mid-2000’s. The good news is that these types of investments have been historically less volatile than growth stocks have been. They also typically pay dividends, which is great for those drawing income from their portfolios.
As you know, we don’t try to call the bottom of a correction. But we are looking through this turn in the inflation data and getting set up to adjust to what’s next. The things that made us money before will not likely be the best places to concentrate portfolios going forward.
We know the road over the last several months may have made you a little car sick… But as we look forward, we will continue to do our best to advance smoothly towards your long-term objectives. If you want to know more about what we are seeing in the miles ahead or want some help “smoothing out” your portfolio – let us help!