Special Update: Market Correction

In August 2021, we titled our quarterly newsletter “Inevitable Volatility” as we warned that, despite the relative calm at that time, a market pullback would come at some point.

The end point came on January 3, 2022, and with it came the return of inevitable volatility. While we encourage you to go back and read that newsletter with its focus on ignoring corrections, we wanted to provide a few updates:

• This correction is right on time. The last greater-than-10% pullback started in February 2020, twenty-three months ago. That’s roughly in-line with the historic average of seeing a correction every 26 months.

• Corrections and volatility are a healthy part of the market cycle, not something unexpected. You wouldn’t want to invest in a market without volatility – it would become so overvalued that you wouldn’t be able to earn a return. (Most people give me the same look when I make that argument as my kids do when I argue that eating their broccoli is a good thing).
• This correction is hitting growth and technology names the hardest, areas where we have minimal exposure. So far (from index peak through 1/25/22), the tech heavy Nasdaq Index is down -15.7%, while the blue-chip focused Dow Jones Industrial Average is only down -6.8%. A number of value indexes and value focused portfolios like Allied’s are holding up even better than the Dow.
• While corrections are never fun (like eating your broccoli), they can provide opportunities. We are actively looking for beaten down, quality companies at attractive valuations in some of the harder-hit sectors. The next market cycle’s performance will be driven by how we position through this pullback.

The most important reminder is not to panic. The financial news, social media, and even your neighbors are prodding you to make a rash decision. Instead, focus on your long-term goals and the investment plan you’ve put in place.

If you have any questions about the market, your account, or would like to discuss your investment plan, we would be happy to visit with you. Please reach out to any one of our team members at (406) 839-2037 to schedule a meeting.

¹ Data from January 26, 2017 TheStreet.com article “Stock Cheerleaders Love Dow 20,000.”

Data Sources: Koyfin, Black Diamond, Allied Calculations

The views expressed in this newsletter represent the opinion of Allied Investment Advisors, a Registered Investment Adviser. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment or services. The information provided herein is obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results. Investments are not a deposit of or guaranteed by a bank or any bank affiliate. Please notify Allied Investment Advisors if there have been any changes to your financial situation or investment objectives or if you wish to impose or modify any reasonable restrictions on the management of your accounts through Allied Investment Advisors.