The Retirement Made Easy 2022 Midyear Market Update, Ep #105

What does the stock market look like right now? As I’m recording this episode, the S&P 500 is down around 20% for the year. In general, it’s a good gauge of the US stock market. The S&P 500 is broken down into different sectors such as healthcare, utilities, energy, consumer staples, financials, and more. The only sector that is positive—or has made money—in 2022 is the energy sector. So far, energy is up 27% YTD.

Should we be concerned with how the market is performing? While I usually don’t answer this type of question, it’s coming up again and again from current clients. So in this episode of the Retirement Made Easy podcast, I’ll share a midyear market update AND answer some listener questions. If you’re worried about the state of the market—don’t miss this one!

NOTE: This episode contains my opinions and observations. Any facts and figures are based on research from LPL Financial and JP Morgan’s Guide to the Markets.

You will want to hear this episode if you are interested in…

  • [2:00] My three-step retirement plan process
  • [3:51] Two things to keep in mind when looking at your portfolio
  • [11:15] LPL Financial research
  • [13:26] How is gold doing in 2022?
  • [14:14] Listener question #1: How should Kathy claim her social security benefits?
  • [16:10] Listener question #2: Should Jim buy a hybrid long-term care policy?
  • [19:19] Why I refuse to work with Wells Fargo

Two things to keep in mind when looking at your portfolio

I have reviewed many portfolios over the last two years. I keep seeing the same problem: they are too heavily weighted in one sector. Technology and healthcare have had a great run, but diversification helps you over the long run. My first piece of advice would be to make sure you aren’t too heavily weighted in one sector or stock.

Secondly, when the market is down, make sure your portfolio still matches your risk tolerance. When the market is going down, many people find they have taken on more risk than they have the appetite for.

What you need to know about market performance

78% of companies in the S&P 500 exceeded their earnings expectations after the first quarter. We were still looking pretty good. However, I’d expect that second-quarter earnings won’t look as good. Why? The stock market is driven by corporate earnings. But short-term earnings aren’t always reflected in how certain stocks are performing. They tend to move hand-in-hand long term.

What factors slow corporate earnings? Companies are dealing with labor shortages, which decrease their growth potential. Secondly, their sales won’t be as high if they can’t get the materials they need to build their products. And if they are able to sell, everything is on backorder. Lastly, inflation is out of control. The Fed is raising interest rates to combat inflation. But whenever the Fed does this, it slows the economy—which isn’t good when we’re heading into a recession.

But to speed the economy up, you need to decrease interest rates and lower taxes. The Fed is trying to combat inflation but if we end up in a recession, they have to drop them to improve the economy. It’s a double-edged sword.

How midterm election years impact the stock market

We are in a midterm election year. Historically speaking, this creates market volatility. LPL Financial’s research looked at every midterm election year dating back to 1950. It looked at volatility and the drop in the S&P 500 and when the market bottomed.

The S&P 500 usually bottomed between August and September in midterm election years. LPL Financial found that there were significant drops (16–17%) during a midterm election year. But on average, 12 months after the bottom, the S&P 500 was up 32%. If history is our guide, we can expect a rebound in the market over the next 12 months.

I answer two great listener questions about social security benefits and hybrid long-term care in this episode. Listen to hear my answers!

 

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