Big Swings

Eight feet swing. I recently took a boat ride in a tidal river in the Carolina low country. My friend handling the boat told me the water was 24 feet deep but could swing eight feet either way, depending on the tide. As he maneuvered around marshes and oyster reefs, he told me we’d have to come back a different way because the tide was going out and the water was dropping quickly. The market has been swinging back and forth a lot too.

The market was really swinging on October 13, 2022, when it swung 5.5% during a single day. It ended the day with a big gain of over 2.6%, which hid the fact that it was down almost 3% that same morning when stocks overreacted to the CPI inflation report.

A big same-day market swing is rare and hasn’t happened since the 2020 pandemic market low. However, these big same-day moves often happen around market lows, and I wouldn’t be surprised if we don’t see a few more as the market works its way out of this bear market.

We’ve had more market swings this year than usual. There have been 39 days this year when the market was up or down more than 2%, seven of which were in the last few days. I don’t think all of these market moves are justified.

Investor pessimism is extremely high, and it’s affecting the market. The Bank of America fund manager survey and the American Association of Individual Investors report shows investors are acting like we’re in a major recession similar to the Financial Crisis, Dot Com Bubble, or even the Great Depression.

I agree the economy is struggling, but it isn’t nearly as bad as the current investor sentiment shows. We are just beginning the earnings season, but of the S&P 500 companies who have reported so far, 69% of them have beaten their earnings estimates. I think there is a chance for a mild recession in mid-2023, but I see some potential for nice gains before the end of this year.

High inflation, a war in Ukraine, continued volatility, and major investor pessimism has possibly caused the market to be oversold. The stock market will continue to have above-average fluctuations this year, swinging in both directions, but investors with thick skin might be rewarded. These conditions often are what seasoned investors see as market opportunities.

On the way back to the dock, I asked my friend how he handled the big swings in the water depth. He said, you don’t cancel your trip because of the tide but plan your trip with the tide swing in mind. I think there’s a lot of wisdom in that statement for investors too. We don’t overreact but keep moving and adjust accordingly, knowing the market swings are part of the trip.

Have a blessed week!

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The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.

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