Special Update: Market Correction
January 25, 2022
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