Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2024

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By William Hubbard

“It’s a dog-eat-dog world, Sammy, and I’m wearing Milk-Bone underwear.”

—George Wendt as Norm Peterson on “Cheers”

Norm, a character on the 1980s sitcom “Cheers,” is a down-on-his-luck type of guy and a regular at the titular Boston pub. He tries to get ahead but never quite makes any progress. So every day he comes back to the place “where everybody knows your name.”

Over the weekend, I was fortunate enough to spend time in Boston with my family. While it was great to get away, I couldn’t completely escape from the worries of the real world. While walking around town, I started thinking about the economy and the market, and that famous Norm one-liner listed above came to mind.

An economy on the edge

Federal Reserve Chairman Jerome Powell’s comments on Wednesday (November 30) suggested only a half-percent interest-rate increase in December, instead of the previous 0.75% hikes. On this news, the S&P 500 rallied hard into the close, gaining over 3% on Wednesday.

Powell’s outlook is that it takes time for interest-rate increases to affect inflation. A decrease in the demand for labor may also be needed to tame inflation. As Powell explained, “… A moderation of labor demand growth will be required to restore balance to the labor market.”

Powell cited the number of job openings, around 1.7 jobs per person looking for work, which is far above the number of job openings needed to accommodate historical population growth. Powell implied that we need fewer job openings. This would slow wage growth and help bring down inflation. With the current unemployment rate at 3.7%, there are plenty of jobs available for people who want to work. Norm Peterson might have spent less time at Cheers if he was looking for work today!

The following chart shows the number of job openings (blue/left axis) compared to the unemployment rate since 2000 (red/right axis). We’ve never had so many jobs with so few people to fill them.

The Fed is walking a tightrope when it comes to our economy, and I, for one, am not a fan. If we fall to one side, Norm better look for a job that pays enough to offset the inflation that is sure to come. If we fall to the other side, then Norm better hold on to the job he has because a higher unemployment rate is coming along with potentially lower wages.

Fright then flight

Another reason I’m not a fan is that many investors are starting to feel understandably frustrated and (like Norm) down on their luck. It’s during times like these that investors are most vulnerable to emotional decision-making—which could lead them to deviate from their long-term financial plans.

When investors get anxious, they tend to want to act. Sometimes this means taking matters into their own hands and making large-scale portfolio changes. For example, fear may cause them to move out of the market and into cash with no plan of how to get back in.

Several years ago, tales arose of a Fidelity internal review of customer performance from 2003 to 2013. Legend says that it showed that those with the best performance were “either dead or inactive,” suggesting a “buy-and-hold” strategy is the best (dead people can’t make portfolio changes). The study is likely not real (you can read more about it here), but that doesn’t mean the point is wrong.

When articles about the “study” say “the best investors are dead,” they mean they’re not driven by emotion and stay the course. The dead investors have adopted the long view on whatever strategy they were invested in when they passed. Dead investors don’t feel the pain of a market decline or the glee of being up when the market is taking on some new sustained market momentum.

The biggest hindrance to success in the market is moving money to the sidelines and forgetting about it—not knowing when or where to reinvest. By combining active and passive strategies, investors can increase the likelihood that their portfolio will work in a variety of market conditions, helping them to stay the course and remain invested.

How to avoid getting bit by the market

As we wrap up 2022 and head into the new year, it’s hard to not feel a little like Norm Peterson with his Milk-Bone underwear. Inflation and the economy are hurting our ability to do what we want today, and the market seems to be hindering our ability to do what we want tomorrow.

In a dog-eat-dog world, investors can avoid being chewed up by staying calm, making thoughtful decisions on how to invest, and staying the course. Of course, it’s much easier to do that when you have a dynamic risk manager like Flexible Plan Investments (FPI) on your side. FPI’s investment strategies are rules-based, quantitative, and take emotions out of the equation.

As we prepared to leave Boston and I watched the market give back some of Wednesday’s gains, I thought about how much peace comes with a defined investment strategy—one that has rules designed to adapt to the current environment, with diversified strategies, methodologies, asset classes, and geographies to help weather the volatility we’ve experienced so far this year.

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