"THE BIG MARKET RALLY OUT OF NOWHERE SINCE MID-JUNE IS WHY I TELL PEOPLE TO STAY INVESTED." "ADV"
CROUCH CONNECTION | AUGUST 16th, 2022
Jim Cramer captured perfectly the message that we repeatedly preach to our clients during trying times:
“We’ve had a remarkable run since mid-June, when we traveled from around 3,636 on the S&P 500 to close at 4,280 on Friday. That’s nearly an 18% gain.”
He goes on:
“I challenge you to name one prominent strategist who has switched directions, caved or just plain got real bullish as we went higher? I can’t think of one.
That’s the problem. I often tell you to stay the course, as I did in June, reminding you that if you flit out and flit back in the market you’re doomed to failure.”
He goes on to point out that the chatter on TV was all doom and gloom, predicting that inflation was out of control and that the Federal Reserve would continue to raise interest rates until they caused a severe recession. No one seemed to be bullish. Cramer continues:
“My point is that given there were no changes in outlook, you had to fight the conventional wisdom that once we enter a bear market, as defined by down 20% or more from a recent high, it is the beginning of the real bone crusher, not the end. But that’s exactly when we hit bottom this time around.”
Almost no one was publicly saying that inflation was about to go back down. In fact, on June 5th J.P. Morgan Chase analysts suggested that oil could climb to a “stratospheric” $380 per barrel if the sanctions on Russia were successful. Oil prices reached almost $124 per barrel on June 14th and have been falling ever since, now under $87 per barrel.
The Dow Industrials bottomed on June 17th at 29,653 and have recovered 4,500 points as of this writing, a 15% recovery. We have had a big run and most of the “experts” probably missed it. Many are still bad-mouthing the rally and hoping it will go back down and give them another buying opportunity.
BUY AND HOLD
Barron’s Magazine recently highlighted a mutual fund run by the successors to a legend in the fund business, Fayez Sarofim. The fund has beat 92% of its peers over the past 15 years and, for a growth fund, has held up well through the correction this year.
Their strategy: buying stocks of high quality companies with strong competitive advantages, and holding them for a very long time…the cornerstone of our strategy at Aspen Grove Asset Management. What was striking about the fund is that they hold their stock selections an average of 14 years…which is unheard of in the mutual fund world.
They don’t flit in and out of the market, trying to outsmart “Mr. Market”. They ignore the “experts” and stick with high quality companies. Manager Gentry Lee says of Sarofim’s strategy, “He wanted us to focus on what businesses could stand the test of time and not be tempted to trade down in quality because of some short-term consideration.” We are of the same belief.
The market faces significant resistance after such a large rally, and we caution you to expect more volatility as the September-October season is often bumpy. However, as we said last month, patience has usually rewarded those willing to ride out these turbulent times, and we are optimistic that will be the case again.
WHAT WILL THE FED DO NEXT?
After that word of caution, let me offer an optimistic view as well. So far in 2022, the financial markets have reacted to the latest collection of predictions about upcoming Fed actions. As hysteria built over runaway inflation, and the consequent conclusion that the Fed would be raising interest rates to the moon, the stock market began to fall, falling more and more as angst became more and more widespread.
It now appears that the most worrisome item in the inflation basket (gasoline prices) has dropped from the $5 range back into the mid-$3 range, taking one of the more burdensome problems off of the Fed’s list. With corn and wheat futures having also dropped 25% and 40% respectively from their recent highs, there is hope that consumers will soon see food prices begin to drop, taking another necessity off the list of runaway prices.
The ”Crouch Theory” is that with the prices of necessities beginning to recede, the Fed will not necessarily want to bring down wages by causing a full-blown recession, and will take their feet off the economic brakes, and successfully pull off the soft landing that everyone would like to see. The market has obviously become more optimistic recently, so hopefully we’ll continue to see more positive signs.
The bottom line this month is that we believe that buying high quality companies with strong competitive advantages and then holding them through the inevitable corrections that come (and go) is the most proven way to build wealth and long-term income streams. Again, we believe your patience will be rewarded.
Of course, if you need additional reasons for our optimism, just give us a call. We always enjoy hearing from our awesome clients!
Dave Crouch Kim Blackburn Kay O’Connell
Registered Principal Branch Office Manager Financial Advisor
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.