Ep 69: Analyzing the Current State of the Stock Market
The X's & O's
Unless you have been living under a rock for the past few months, you have noticed the intense effects of inflation.
In this episode, Brent Pasqua, Matthew Theal, and Joshua Winterswyk discuss the state of the stock market as of June 2022 and highlight what a downturned market has meant for investors throughout history.
Matthew, Brent, and Joshua discuss:
Their thoughts on the new LIV golf tournament (rival to the PGA tour)
The effects of the rising consumer price index and the staggering increase of inflation
Their opinions of what this inflation will cause in the United States
The upside on the downturned stock market and what it means for the future of your investments
And more
Resources:
Connect With RPA Wealth Management:
The Hosts:
Brent Pasqua, Matthew Theal and Joshua Winterswyk
Transcript
Welcome to the Retirement Plan Playbook with Brent Pasqua, Matthew Theal and Joshua Winterswyk from RPA Wealth Management. In this podcast, we cover current events, retirement planning, straps. And provide you with the tools to help you build a successful retirement playbook in any political or financial landscape.
Join Brent, Matthew and Joshua as they navigate the issues that can make the later stages of your retirement plan, challenging and help you create the best Retirement Plan Playbook. Now let's get to the show.
Welcome and welcome to the Retirement Plan Playbook. I'm your host Brent. Founder of RPA Wealth Management. I'm here with Matthew Theal, certified financial planner and Joshua Winterswyk certified financial planner. I'm super excited for the topic today. Today, we're going to talk about the state of the financial markets.
And I don't know if I should be excited about that because it's been so bad. Oh, I'm pumped up for this one. Uh, I don't think it has been bad. I think it's good. Stuff like this is healthy. You think the markets have been good. The returns haven't, but I think, you know, there's some real positives going on, so stuff to get excited about.
At least I think markets can be a lot worse too. Yeah. Much worse. You know, it's much better than people sitting around and day trading stocks on Reddit boards and, you know, pumping up companies that are worthless, like GameStop and AMC. Yeah. I mean, I'm excited to hear your guys' opinion today. Cause I think there's so much data to support everybody's opinion and I think it's, it's important for people to see really what.
We're at, you know, a couple months ago and where we are and what some of that data is basically suggests in great point. I'm excited. But as we get started summer's upon us heat. It's coming vacation time. You guys looking forward to summer. Yeah, I am. We've got a bunch of summer trips planned.
I'm thinking I'm going to Hawaii. You think? Or, you know, I I'm going to Hawaii. Sounds like maybe Vegas in September. A couple of weeks before that sounds like Montana, a little golf with the boys, uh, should be a good time. Your, you sound like you have a busy summer. What about you? Hopefully I'm on a couple of those trips with you.
Not too much a plan. We have the little one he's now five months, which is crazy. But I'm just enjoying some, some pool time and just the nicer weather. It's nice to like get off of work. The sun's still out. It's nice. So we can go for walks and do a little bit more outdoor activity. So nothing on.
Books. That's a for sure yet, but hopefully I'm on some of these trips with math. It's it is heating up though. It's getting hot and I think it's going to be nice to be outside so hot. My poor daughter were driving home. I pull her out of her car. She's just sweat buckets. I'm like, I got the AC as low as it goes, but it feels like every year it gets hotter and hotter.
Do you have your windows tenant that could help? I don't. Um, but I should probably look up. That's an easy fix. All right. So let's get into the hot take headlines. Live a new golf league is a new league that was founded by the Saudi investment fund and Greg Norman group. It has been paying hundreds of millions of dollars to top golfers like Phil Mickelson, Dustin Johnson.
And how do you say his name, man? Bryce in the Shambo. The PGA has now suspended. These golfers who have joined, uh, Lev from the PGA. What is actually happening here because it seems like golf is like literally falling apart. Or is this just smoking mirrors? No, actually, I mean, this is, uh, a real rival to the PGA tour.
Love actually said it came out that it's not trying to rival. We can see that it is it's all over the news. And Greg Norman actually teamed up with a Saudi investment fund, uh, to create this golf tournament and they have some deep pockets. So they've really quickly have attracted some top golfers to this new golf tour, um, that has started this weekend.
You know, what's crazy as I was doing some research and. You know, there'd be some people who'd be like, ah, you know, if Trump was still the president, this would never happen. Right? Like there's no way that the PGA tour would be breaking up. But from doing some research, I found out that Trump's actually somehow involved in this new golf tournament.
Like a bunch of his courses are being used for. Yeah. That was my next question. Is, are they playing here or are they playing over season? Uh, I'm pretty sure it's a world tour. So the first tournament was in London. Then we'll have tournaments here too. Some of the tournaments also will be teamed. Debased kinda seems a little gimmicky there.
I think what's, so far only one of the top 20 golfers in the world have actually joined that toward though. So Dustin Johnson, the only top 20 golfer currently that has actually made that move over there. So it's not like all of the top golfers have fled. Well, all the young talent but it is going to be a global tour.
Hopefully the Saudis do baseball. Is that that's just another sport that's right. For reform. Yeah. You know, I think that that's what positive is it can cause change or, you know, create change. I think that for a long time, people have kind of complained that the PGA is like stuck in its own way. Um, and haven't made a lot of changes and become more innovative and younger.
So this could definitely help that. Um, but w what I was reading too, This investment group that's helped backing. It is really, really deep pockets. And that's bad news for the PGA. They're not really worried about turning out a profit. They're worried about this kind of succeeding. And so they're writing big checks to get a lot of these golfers over and, you know, that could potentially be successful.
So I understand this is a new league and you generally don't have like people playing for multiple leagues, but why, if it's tournament base, like why doesn't the PGA. Players to play in both the PGA and in Lev 'cause, they're like major league baseball. So they suspended all the players who joined the lovely yeah.
You know, straight out Rob Manfred's playbook. Yeah. You're either in our league or you're not, and you can't be in both. And now it's coming down to, you know, are the major tournaments going to allow these players to play. So like as the masters, um, I think the U S open has already said that they're still gonna allow them.
Um, but that's all up. Decision as well. I hope these deep pockets don't mind losing money because we've seen in multiple sports, other leagues try to be creative. Most of the time they always fail. Yeah. And who's going to benefit some of these golfers though. I mean, you know, taking some risks, but getting paid regardless of if it fails or not, uh, five five-year Patriots following the money and Dustin Johnson, if you're looking for a new financial advisor, RPA wealth.com and our next topic really kind of might be one of the reasons these PGA players are actually leaving and that's because of inflation.
Uh, the consumer price index rose 8.6% in may from a year ago. Uh, that was the highest increase since December of 1981 core inflation, excluding food and energy rose 6%, both were higher than expected. Surging food, gas, and energy prices all contributed to the gain with fuel up over a hundred, 6% over the past year and shelter.
Which comprises about one third of the CPI rose at the fastest 12th month paste in 31 years, inflation is just going bananas. What is going on? Yeah, it's PR it's pretty scary. And you know, it's obvious to most people because we fill up our car and go to the grocery store and that's where the biggest price increases are.
I find it interesting, you know, this is, uh, you know, something that we were on for a few shows back But the PC, the PCE and the core CPI actually peaked a couple months ago. And those are dropping and coming in. What are those? That's when you don't include energy and food costs. So what that tells you is all that you know, supply shock from the day.
Right where everything was kind of just going higher because of the supply chains. And there was, um, no product on the shelves. Do you remember that lack of inventory inventory exactly. That's coming to an end, but what's happening is food prices and energy prices are shooting higher. And why is that happening?
It's it's most likely happening because there's a war going on in Eastern. So, you know, unfortunately, um, you know, here in the states, we're paying the price for that. Well, how, how much longer can price of goods continue to just keep going up? Eventually it's going to hit a point where we would get to what they call demand destruction, where people stopped doing.
My guess is based on kind of wage growth for driving. It's probably about eight to $9 a gallon. So right now here in California, we're at six to seven, the rest of the nation's at five. So I would imagine here in California and we get to about $10 a day. And then, um, in the rest of the country, it's probably around eight or nine and then people will probably start making changes.
The higher prices will eventually cure the higher price. Right. Because you're going to stop doing things. Yeah. I mean, when you look at the year over year, changes in a bag is up, eggs are up 32% this year, chickens up 17% outdoor equipment's up 11. I mean, even just looking at, you know, in relating it to food, does.
When it rises so much, does that cost actually come back down or does it establish a new norm? That's a good question. I think from past experiences, I mean the cost could drop a little bit. But for the most part, you know, it could be establishing a new norm, but let's take what everyone remembers most likely that happened in 2007, 2008.
The last time we had, you know, a big surge at the price we were paying at the pump. You know, I feel like I went to a, what, five or $6 a gallon around here is that correct? And then it dropped and was stable for, you know, 10 years at two to $3 a gallon. So energy and food are just always very volatile.
That's why everybody likes to look at the CPI with it T with those taken out. It doesn't feel like supplies coming back though yet, because every time there's things that I want to go purchase, it seems like everything's sold out. So, or prices are just astronomic. Supply so low. Oh, sorry. No, no, no problem.
You can see target though. Uh, they had the report that they have access eminent. Right. They're starting to pile up. And some of their, demand has been lost and supply chains are getting a little bit better. So I think that you're seeing some of these bigger companies starting to transition, and I think eventually the smaller companies will have.
You and I think the same, cause I was going to say the exact same thing. Target basically just has a bunch of inventory that people want during the pandemic and nobody wants it anymore because the pandemics over. Right. And they have the purchasing power to actually be ahead of it. Right. So eventually these smaller companies hopefully get caught up because we are seeing better reports about supply chain bottlenecks easing.
So maybe some toilet paper is going to be on sale. Now I think, you know, the main takeaway from this is the inflation data came in hot enough. That right now, the market, um, as of today, we're recording, uh, Friday, June 10th is pricing in three 50 basis. Point rate hikes in June, July, and September. Um, so interest rates are going much, much higher from here.
When you say that that, that is in respond to the inflation, or is that what the fed has already started to say that would be needed to combat inflation with the, the market? The financial markets are expecting the fed to do. Got it. It's think of it like a prediction market. That makes sense. So I guess prices are here possibly to stay.
Things are being costing a lot more than they were. And but hopefully prices do come down. Let's get to the retirement planning corner. Uh, stock market has been difficult this year in terms of returns. We've had some highs and some lows, uh, we've seen the market fall throughout most of the. And then try to come back and then come back down.
What do stock returns actually look like this year? Yeah. So you hit the nail on the head. It's been a weird year for the stock market, kind of just a slow grind, lower. And so far when we go back to 1926 this has been the third worst year ever for stopped. To start the year. So the only two years that were worse were in 1932 in 1939 in 1932 stocks fell by 27%.
And in 1939, they fell by 16%. Stocks are down somewhere between 12 to 15%, depending on when you look at the market for this year. So it's been a really rough start, but the good news is. And there's always some good news, right? We could go back in time and see what happens after stocks fall in. And we see when stocks start poor, like they do on average, six months later, they're hired by 14% and 12 months later, they're hired by 24%.
And what everyone seems to always forget about the stock market is it as forward-looking this stock market correction really started in the fall of last year and has kinda. And it'll probably continue for another few months before the market finds a bottom and starts to go up again. And when you say the start of the year, what is that mean?
January 1st until when it looks like this one is until April is dead that we have. So the first four months of the year, essentially we're off to the third, worst start of the year. Yeah, exactly. And I think you make a good point though. We kind of, a lot of times relate economic data. Looking into the past and relating it to like stock market prices and the stock market, which is very forward-looking.
So I think you just make a really good point there, Matt. So I guess what some of this essentially says is that even though we're off to a very bad star, historical data would suggest that there's possibly better returns on the horizon over the next eight to 12 months. Yeah. If you're patient and you don't.
Do too much. I mean, this is all this data, as soon as you don't touch your portfolio. That's what I always assume. So, you know, don't, don't make too many changes, right? So if stock market data suggests this, what is the bond market? Tell us we're sever start to the year. So I got even worse news than that does, uh, we actually have the same data, uh, that Matt was just discussing.
So since 1926, from the beginning of the year, January 1st until April 3rd year. So the year to date return of bonds has actually been the worst ever since 1926 and it's down negative 9.5%. So, can't actually quote or give an example of a worst year. This is the worst year to start. Um, but. The data actually suggests just like stocks that better times are coming.
When we actually looked at the average of all of the worst years, since 1926, we've had positive rates of return over the next eight and 12 months. So over the next eight months, bonds have returned over 5% and over the next 12 months, on average, after a big negative drop, like this one have on average have returned over 7%.
So if you were to call your field and your financial advisor right now, if he's managing your portfolio, you know, from like RPA, And you tell them you want to invest in bonds. We could get a two year us treasury bond as of market prices. A Friday yielding 3%. That's pretty good. I haven't seen that like 10 years chance it goes higher, maybe just a four and a half, 5%, but at some level, people are going to be really interested in bonds because you're going to be able to lock in a guaranteed fixed rate for a number of years.
And that's kind of where bonds are headed right now. And that's why you're saying it's a good buying opportunity. Yeah, absolutely. And I think that the turmoil in the stock market, you know, makes investors reluctant to invest in anything. Right. So it can be a little bit, uh, make you a little bit nervous to even invest in the bond market.
But like the example you gave there are on average, good returns out there, looking forward into the future. After big drops, like we're in the interest rates, rising is the best thing ever for our time. Literally, I feel like in a year from now, if the 30 years at 4%, we're going to be sitting down with all of our attorney clients and just being like, Hey, let's lock a million dollars into the 30 year bond.
You're going to get your 40,000 a year in income and you're going to live a really comfortable retirement. And then that million bucks is going to go to your kids when you. And we haven't seen that. Hasn't been like that in ages. Bond yields have been so low. And you know, we've really relied on stock performance for, for good returns, but you're right.
For anyone on fixed income are looking for a little bit of more of a moderate portfolio. Better times are potentially on their way. Hey, it's going to be awesome. I can't wait to do retirement plan over the next few years with the clients, the two data points that you guys just discussed. I think one of the things that I think is somewhat or important and interesting is the fact that if you say.
From a investor standpoint, uh, you wanted to take risk off the table because you were concerned about how much volatility and fluctuation there was in the market. So let's say you sold some of your stock positions and then moved it over to bonds. When you're talking about over the next eight months and stocks and return was 14.1%.
And in the next 12 months in stocks, it was 24 points. Versus bonds had 5.2 and seven. If you're moving money from stocks right now to bonds, the data switches gesture, you're have less earning power on your money over the next eight to 12 months. Oh yeah, absolutely. Yeah. You never want to. Uh, that's a, especially when times are bad, but I think that's what most people's natural instinct is to do.
Right. Sell stocks because it's so volatile. Take money off the table, that risk off the table, and then they put it in bonds. The bonds aren't gonna earn as much flight to safety. Yeah. You know, when a good time to buy patio furniture is right now because Target's marketing down prices, you know, in a bad time to buy patio furniture was during the pandemic when it was all sold out.
Funny. Target actually emailed me that all patio. Furniture's 30% off. Yeah, because they bought, they bought too much patio furniture. Nobody needs patio furniture anymore, but that's what's happening in the stock market. Right. It's just things are selling. Why would you like, you know, get out now? I haven't seen too many years where stocks and bonds are both negative at the same time.
How rare is it for this to have. Oh, it's super rare. I don't think it happens that often. I think it's the last time it happens happened was 1994 and then 1976, prior to that in what we could see is when they're down, it's typically again, a good buying opportunity. Right because everything had been reverts.
But for stocks and bonds to both be down 12% and 9%, it's pretty unheard of. It's breaking a lot of portfolio models today, very unique time right now. And, uh, what happened, you know, cause a lot of people who are retired or just doing basic financial planning, they might be invested in a 60 40 portfolio, which means you have 60% of your money in stock, 40% of your money in bonds.
What's happening to those types of portfolios with both of them being down so much. Well, that's a great question because we actually have the data on a 60, 40 portfolio, 60% stocks and 40% bonds. And you know, this is, this style of portfolio has had just such a great track record. So this is why we're also talking about it.
Cause it's very commonly used. But since 1926, we looked at all of the worst rates of returns of a 60, 40 portfolio. And in 2022, so far this year, the 60 40 portfolio is actually down 11.2%. There's only been two other years that have been worse than this year, and that was in 1940 and 1932. Um, but we also have that good looking forward data, uh, that Matt provided us on average over the next seven months.
Um, after it dropped like this from a 60, 40, 60, 40 portfolio, uh, the average rate of return was 9.6. And the next 12 months over 12.6%. So again, some really great positive average rates of return after some of the worst starts, uh, in our stock markets. 'cause I guess that data's now looking at, from January to may in that first five months start.
Right. And that's why it's looking seven months out. So still positive data on the horizon. Yeah, absolutely. And you know, like we've been saying it's probably a good buying opportunity if your time horizon is long enough you know, to lock in the 60, 40 portfolio of stocks and bonds, both attractive you know, if you're sitting on the sidelines a good time to get in, and I think it's also telling us, like, say, You know, stick to your plan and, you know, creating a portfolio should be proactive looking for both up years and down years, we have the data to show that even when they're down, we have positive outlook going forward on average.
Yeah. Uh, I'm not certain either that this year has really tested people fully. Um, I feel like there's probably more times where it's going to continue to test people's resiliency to stay in the more. Yeah, I agree. I think you know, if you're digging into the research right now We're either in kind of the, like what it was like in the night late 1940s, early 1950s, or were in where it was kinda like in the 1970s.
Nobody really knows, but that's kind of what the data is suggesting just from, you know, not only the inflation data, but from the supply chain data to the, to the global financial market data, suggesting it looks like that. And you know, it very possible we're on, on the move for kind of just a slow grind, lower not, and you know, it's just going to lead to frustrate.
Is anything going up this year? Yeah. There's one area of the market that is going up energy stocks. So energy stocks are up 58%. This. Uh, they're early helping to hold the indexes together. Everything else is down double digit percent. Oh. And utilities, but utilities are boring, so, yeah. And that's how to avoid 11 or 12 different sectors right out of, out of a what?
12? Yeah. What, what a case for diversification? Yeah, I know, right. If this is though a bear market, I think the, the most important question everyone has is how long will it last? You know, it's funny because we've been given all this data, Josh and I about how, Hey, it's a great buying opportunity. Um, you know, things are going higher, but you know, more than likely we're in a period where we're going to be kind of in a slow grind, higher of a.
Where we get shot, you know, some rallies going up, but then we, you know, drop back down. We've got a good rally, the last two weeks of May, the June, and now we get this inflation data and the market turns back over. Um, I think we're in a period of time where it's going to be, you know, another year or two of just, up and down volatility as we kind of shake off the pandemic is now a good time to be investing money because.
If it is going to be a year or two, she just sit on cash. I mean, that complicates that question. I think you need to have a strategy, you know, right now is a good time because prices are lower. So it is always a better time when you're buying anything on discount or if there's a sale, you just have to be prepared that if we do reset or there's even more correction going forward, you have to be comfortable with the decision you made.
And continue that frequency continue to be consistent with your deposits and investing or dollar cost averaging. So I think that it is a, it is a good time if you can afford to do it, if it fits within your plan and better times are, going to be on their way. We, we saw that in this. I think that if you're under 50, you are so excited to be buying stocks right now for your 401k's, um, in your personal accounts, like you should just be backing up the truck dollar cost averaging every month, buying as much as you could get your hands.
And then if you're over 50 and you're getting closer to retirement, you should be so happy because every month the interest rates take higher. It's just going to be so much better and so much easier for your retirement because you're going to be able to lock in a fixed interest payment on your retirement nest egg.
It's it's going to be an amazing time, but I even think for someone that's over 50, you're probably at your. Max wealth accumulation year, right? You've never made more money. We've seen wages go up. You're at your, you know, the most advanced you've been in your career. So you're hopefully putting even more money into your 401k, investing more money at this discount price, which is going to equate to an even better retirement.
Once we kind of exit this period we're in right now. Yeah. Once we get through this, it's going to be good. I, I don't think that there was a lot of opportunity last year. Would you agree? I mean, place prices were so inflated on everything, including valuations on businesses. That last year was not a buying year.
Last year was probably the most boring and career. Year of my career, it was so boring. Everything just kinda went up. There's nothing to buy. I think I did like two personal trades outside of my dollar cost averaging in my 401k. Um, yeah, it was a boring year. Yeah. It just prices got out of control.
And I think when we're in markets like this is when you get the most opportunity and change is good. And hopefully, you know, as this is a little bit of a, a rough ride for a period of time, I think the outcome, it should be positive and hopefully it will be absolutely right. Well, let's get into RPA recommends.
Um, I'll start with the RPA recommend today. I'm going to recommend, uh, It's called OnCloud. Uh, I see a lot of people wearing them. They become more popular over the last few years, but they're actually a great workout shoe and they also have a great, like just normal wear shoe. The brand seems to be pretty outstanding and they got some pretty cool styles if you pair it and wear it right.
I would recommend everyone to kind of take a look at them. Cause they, they do have some neat stuff. Do you like go to this? Do they have a store like at the mall or where do you buy them out? Uh, you can buy them online if you're not. If you're buying a workout shoe, you probably just need to wear them for working out.
It's not a shoe. You will probably want to dress with your normal attire. Yeah. But they do have a tennis shoe that does look actually outstanding for normal time. Do you have you have a pair of on clouds? Yeah, I have two. Wow. No issue. I agree with Brendan great shoe. I went into the barbershop and I had them on and my Barbara is like, oh man, those are fresh.
Uh, he said, he's been trying to get them, I guess they're sold out in his size. So it's a hot shoe brand. You had some, all white ones on, they looked pretty clean. Yes. Yeah. All you gotta buy the right ones. Stay with the right colors, but yeah. Great shoe. I'm going to buy green ones just to make you mad where I'm into the office.
What do you have for us for record? Uh, all right. Well, it's been a while since I've, uh, recommended, you know, a Netflix show and, um, yeah, I guess, you know, content, wasn't that good for about a year because of the pandemic kind of messed up content production. But the new stranger things is fantastic. Netflix spent a ton of money per episode and it shows a phenomenal show, supposedly it's the last year of the show, but I think it's so good.
They should run it back for season two. Didn't they say like 30 million an episode. Uh, you're the one who told me that. So I'll go with it. Uh, it looks like they spent 30 million in episode. It's really good. Really well done. Highly recommended if you're not into the series yet, but if you are into the series, stranger things, give it a watch.
I haven't watched it yet. I mean, I'm caught up with stranger things. I just haven't watched the newest season. So I'm excited to, to watch that. What do you have for us for a record? Uh, I'm going to recommend a new drinking water. So during the Superbowl, this company, ERDA commercial, uh, the company's called liquid death and they do like Stillwater and also sparkling water.
And the commercial was actually pretty funny cause it's shaped like a. Like a tall can kinda on it had a bunch of kids. I got a party like drinking the sparkling water, like they were kind of partying and it kinda caught my eye. So I ended up seeing it at the grocery store and tried it. So it's kind of gimmicky like the can and all of the labeling on it.
Uh, but the water is actually pretty cool. It's good. And it's a good conversation starter. I always have it in my fridge now. You know, when people come over, I share it with them and, and they like it it's, it looks like a craft beer or an energy drink. Like the can. Yeah, it does. It looks like a monster or a craft beer.
Yeah. You gave it to me. And I was looking at. Alcohol content on it for like five minutes looking at it was a beer. I thought it was a beer. Yeah, no, it's just a sparkling water. I think they have like some new flavors now, too. But if you haven't tried it new, you like sparkling water or canned water, you know, kind of on the go.
Pretty good. And it's new. Yeah. I'm going to steal that for you. I have some people coming over this weekend and I'm going to stock the fridge with it for a conversation. Uh, or tell him it's a beer and hand it to him. Yeah. Well, as advisors, we love helping people. Uh, that's why we do it. If you'd like to schedule an appointment with any of us, please go to RPAWealth.com and schedule a complimentary consultation.
You can also download our ebook from our website. If you'd also like to review the show notes, please go to retirement. Plan, playbook.com. But from our end to yours. Thank you for listening.
thank you for listening to the Retirement Plan Playbook, click the following button to be notified when new episodes become available to get in touch with our team, call us at (909) 296-7977. Or visit our website www.rpawealth.com to schedule a complimentary consultation. The information covered and posted, represents the views and opinions of the guest and does not necessarily represent the views or opinions of RPA Wealth Management.
The content has been made available for informational and educational purposes. Only the content is not intended to be a substitute for professional investing advice always seek the advice of your financial advisor or other qualified financial service provider. With any questions you may have regarding your investment planning.