Where are we in the market cycle


Hi Reader,

We have now experienced 41 consecutive weeks of bearish investor sentiment. Interest rates have risen significantly and P/E ratios are sitting at their 25-year average.

In today's email:

  • Why we offer a Free Retirement & Tax Analysis
  • How to evaluate the economic environment
  • Where are we in the 'market cycle'

Your Free Retirement Assessment™

My firm is looking to help 12 new families this year.

We are experts in tax and retirement planning for people over age 50 who have accumulated a nest egg of $1 Million or more.

The 90 families we work with across the country hired us for one (or more) of the following reasons:

  1. Lower their tax bill in retirement
  2. Create a reliable income stream
  3. Reduce risk and improve investment returns

Many of them also hired us to take the heavy lifting off their shoulders in retirement.

They were self-managing "DIYers" for decades but now prefer to spend their valuable time on other things they love.

It's hard for retirement savers to find the right financial planner.

We all have similar titles, designations, and service offerings.

So to help you evaluate our firm + make an informed decision about working together, we offer a Free Retirement Assessment™.

Through this 3-step process, we will:

  • Answer your most pressing questions
  • Show you how to lower your tax bill
  • Provide a roadmap for improving retirement success

This process will allow you to see exactly how we work and how we can help before trusting us with a penny of your hard-earned money.

If you're on the hunt for a retirement and tax planning expert, learn more about our Free Retirement Assessment™ process here.

Are you looking for an advisor with different expertise? Or a different service model?

Reply this email and I would be happy to try and find you the right professional.

Let's dive into this weeks commentary. 👇

How to Evaluate the Economic Environment

We're often encouraged to think about our expected investment returns through the lens of a full market cycle.

I agree with this -- and depending on who you ask, a "full market cycle" is generally considered to be about 10 years.

With that in mind, it's worth mentioning that the average annual return over the last 10 years for the S&P 500 is +12.73% (ending 12/31/22).

This is well above average for those still dwelling on the last 12 months.

But the past is the past and most people are much more curious about what the future.

While I have a general disdain for forecasting...

...I believe understanding where we stand in the market cycle can help us think through the probabilities of what the next few years may look like.

And that's what I'd like to do today.

One tool we can use to evaluate the current market environment is a set of six questions Howard Marks shares in his book, The Most Important Thing.

I'll briefly address each one to see what it might mean for the future:

1. Are investors optimistic or pessimistic?

According to the AAII Bull-Bear spread, we've now experienced 41 consecutive weeks of bears outnumbering bulls.

This is the longest streak since the start of their survey. Pessimism and fear have clearly been the dominant emotions for a while now.

2. Do the media talking heads say the markets should be piled into or avoided?

Talking heads continue to call this a "stock pickers market" and are encouraging investors to "exercise caution" with their portfolios.

That doesn't sound too optimistic to me.

3. Are novel investment schemes readily accepted or dismissed out of hand?

Investors in the world of crypto and cash-flow-negative tech startups have gotten destroyed over the last year.

Given that, it's safe to say that skepticism is high toward novel investing ideas at the moment.

4. Are investment offerings being treated as opportunities to get rich or possible pitfalls?

IPO proceeds were down 94% in 2022. Coupled with the note above, the allure of easy money appears to be behind us.

5. Has the credit cycle rendered capital readily available or impossible to obtain?

Interest rates have risen significantly, and loan underwriting is increasingly stringent.

6. Are Price/Earnings (P/E) ratios high or low in the context of history, and are yield spreads tight or generous?

P/E ratios are right at their 25-year average, so there's nothing bubbly about valuations. However, yield spreads are currently negative, which I would argue is a point of caution here.

So...What Does This All Mean?

To be clear, nothing can tell us what will happen next.

However, we can at least make some inferences about the near future based on where we are today.

First, I agree with the consensus that we remain at the mercy of inflation and the Fed in the near-term.

But as we look at the years ahead, much of the excesses that typically drag markets down appear to be behind us.

That it is certainly a positive.

In addition, we have historic pessimism...

...and we know that the more pessimistic people are, the more pessimism must already be priced in.

Another positive for future returns!

It's counterintuitive, but John Templeton was clear that pessimism is the starting point for good returns when he said:

"Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria."

Given the notes above, I think it's clear that things are starting to look up.

Having said that, nobody knows when the tide will shift which is why maintaining the faith that the good days will return again is so important to successful investing.

New Subscriber?

📖 Read last weeks newsletter: Markets That Go Nowhere

And then hit reply to this email with any questions. I read and respond to every message :)

Stay wealthy,

Taylor Schulte, CFP®

Taylor Schulte

I'm the host of the Stay Wealthy Retirement Show and founder of Define Financial, an award-winning retirement and tax planning firm. When I’m not helping people lower their tax bill, you can find me traveling with my wife and kids, searching for the next best carne asada burrito, or trying to master Adam Scott’s golf swing.

Read more from Taylor Schulte

Hi Reader, If you will allow me some freedom, I want to take a brief detour from my usual topics of financial planning and investing to discuss a controversial subject: politics 😳 But first, did you catch this week's podcast episode? You Are (Probably) Planning for the Wrong Things in Retirement Why are most people planning for the wrong things in retirement? What should they be planning for that they’re not? And why are retirees more depressed than everyone else? Listen Now → Moving Forward...

Hi Reader, Today, I’m sharing seven of my favorite investing & economic charts from the past month. These charts cover topics such as: History of bull markets U.S. economic growth Consumer wages (and satisfaction) ...and more! Let's dive in. 👇 Favorite Charts (October 2024) #1 - This Has Been One of the Fastest Bull Markets in History The S&P’s 63% gain through the first two years makes this the third fastest start to a bull market since the 1940s. Interestingly, the two bull markets that...

Hi Reader, The media loves election season. Unfortunately, this means we’re exposed to countless theories about how the market will react. I’ll save you the suspense (for which there’s plenty of support for this statement below): While the election may be important for other reasons, who ultimately wins probably won’t matter as much to our economy and portfolios as the media would like you to believe. Let me illustrate the truth of this statement by revisiting the last two (highly...