February 2025

When financial news is scary, I like to look at the big picture—bad news sells. Just like in life, in investing, we prepare for the worst and invest for the best.

I cannot predict the future any more than anyone else.  That is why we focus on your goals and cash flow to help you weather the storm clouds on the horizon or a full-blown hurricane.  We do this without going down the rabbit hole or holing up in the bunker.   We invest in quality individual securities, balancing stability with returns.

If the “experts” really could predict markets and investor behavior, there would be no uncertainty, and everything would be just like they say every day and every year. The fact that no two experts have the track record of always being correct illustrates even a stopped clock is right twice a day. 

Investing is a marathon not a sprint. Pullbacks give markets legs to keep running. 

A market pullback is where stocks in a bullish trend experience a decline. The pullback can happen within a short period such as a day or go on for several months. Historically bear markets last less than a year.

A recent example is the stock market pullback of 2020. The market dropped sharply after the World Health Organization (WHO) announced that Covid was a global pandemic. That initial decline was part of a market pullback followed by a bullish rally, helped by the accommodative Federal Reserve and strong quarterly earnings.

There are three main types of market pullbacks:

• First, there is the cyclical one that happens as part of the normal breathing in and out of markets.
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• Second, there is a market correction. A market correction happens when a stock market declines by about 10% from its highest point.
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• Finally, there is a bear market, which happens when a stock or the broad market declines by more than 20% from its highest point.
   
  It is worth noting that a stock market pullback is generally when an indices like the S&P 500 or Dow Jones declines, not just an individual security pullback.

Reasons why a market pullback happens: 

• Profit-taking – At times, this will happen simply because investors are starting to take profits. This happens after a stock or index makes a major parabolic jump. When it happens, some investors tend to exit as they take profit.
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• Earnings – A stock market could pull back after an important company publishes weak quarterly results. Expectations of weak earnings growth could push many investors to sell their shares.
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• Political event – Some political events could lead to a major pullback. Some of these are election outcomes or a bill to hike taxes.
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• Monetary policy – At times, a shift in tone by a central bank can lead to a reaction in the stock market. When there are signs that a central bank like the Federal Reserve will start to tighten, it increases the possibility that a pullback will happen.
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• Technical – At times, this situation can happen simply because a stock market index reached a key technical level.
   

We don’t know what the future holds, but we are not losing sleep, and we are not rushing to the exits.  The people that quit will never get there. In this investment marathon catch your breath and keep running.