February 25, 2022
From geopolitical issues in the Ukraine and Russia, to domestic monetary problems (highest inflation in 40 years), the market is dealing with heightened volatility, and selling off as a result.
- History indicates that declines due to geopolitical events are often short lived, and on average, the market is higher 1, 3, 6, and 12 months later.
- Looking at 29 unique events since World War II, stocks were higher 66% of the time one month later.
- After 12 months, the market was higher 83% of the time, with an average gain in the double-digits.
The initial pullback from a geopolitical shock is a good reminder of why we focus on quality holdings. The Nasdaq, with its exposure to less stable but growthier companies, has been trending down in recent weeks. From it’s high in late November, it reached bear market territory [down over 20%] on the initial news of Russia invading Ukraine. The more diversified S&P 500 is holding up better, down roughly half as much. Higher quality companies with more stable earnings and long-term dividend track records (our focus) are, in general, holding up a bit better than the broad indexes as money tends to flow to these companies during times of stress.
For those with bond exposure, this is providing even more defense. Despite facing rising rates (which push bond prices down), the Bloomberg Aggregate Bond index is down only low single digits in recent months. At Allied, we are keeping our bond exposure in high quality segments including short-term Treasury bonds and investment grade corporates – areas that benefit as investors panic and seek quality and safety.
Bottomline, corrections are never fun. But they’re a (necessary) part of long-term investing. Owning companies like Johnson and Johnson (JNJ), Wal-Mart (WMT), and Procter & Gamble (PG) may not be glamorous, but they are dependable and, historically perform well on a risk adjusted basis. Procter & Gamble, for example, has paid a dividend to shareholders every year since 1891 (131 years!) and raised that dividend every year for 64 consecutive years. Owning quality can feel boring during the good times, but slow and steady often wins the race.
If you have any questions about the market, your account, or just need an update, please reach out to any one of our team members at (406) 839-2037. We would love to visit with you.