Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Tonight, we have some critically important context about the market
volatility we have seen recently that you aren't going to
get anywhere else.
Speaker 2 (00:15):
You're listening to simply money presented by all Worth Financial.
I'm Amy Wagner.
Speaker 1 (00:19):
Choose your word cratered, plunged, tanked, melted down, sunk, real, jolted, crashed, routed.
I also saw panic recently on that list, and I
just saw that one. So before you panic, we're going
to take a collective deep breath, lean in. We've got
all Worth chief investment Officer and eased Out joining us
(00:39):
today because we know this has not been the start
of a normal week, normal several days. You know, Andy
manages twenty billion dollars worth of money, so when there
are market fluctuations, Andy, we.
Speaker 2 (00:52):
Know you are paying very very close attention.
Speaker 1 (00:56):
I want to start with this. First of all, headlines
are very very scary. If some of them make it
feel like we're starting into something that's going to be
long and terrible and many times kind of like we've.
Speaker 2 (01:07):
Never seen before. What's your perspective? Is this maybe short
term volatility?
Speaker 1 (01:12):
Is this something longer term that we're going to be
And I understand you don't have a crystal ball. But
from what you're seeing, what's your gut tell you here?
Speaker 3 (01:20):
Well, I think right now it's probably more of a
short intermediate term thing to worry about. However, there are
potential catalysts that could make this a longer term, but
we're likely not there yet. I mean, if we look
at just what's been happening, I mean there's essentially three
reasons that all came together, all at the same time
(01:43):
that caused this volatility. You had the belief that the
US economy was simply unstoppable, but when we got the
Jaws report on Friday and we saw the unemployment rate
go from it was at three point seven the start
of the year now it's at four point three percent. Also,
was the thought that AI would revolutionize the world. Well,
(02:05):
earnings have been coming up from these big tech companies
and they're not making any money off of it. So
there's some question questioning around AI right now.
Speaker 2 (02:13):
Not quite revolutionizing yet, right.
Speaker 3 (02:16):
Not yet? Right. And then there's the Bank of Japan,
which has been thought to have been a docile entity
and not you know, raise raids, or at least not
raise them too much. But they've already raised I'm not
talking about cuts here like we're talking about here in
the US. Their central bank has raised rais twice this year,
and it's likely they'll raise them again. Those three all
(02:36):
happened at the same time, essentially, and that just caused
a domino effect. Now the question becomes to answer your question,
does this transform from a risk off trade into more
of a recession induced prolonged bear market. Right now, we're
(02:59):
looking more at the risk off scenario, But that doesn't
mean there want to be more pain in the short term,
right I mean, we have a volatility that's normal, and
we can talked about that in a bit, But the
question of whether or not it morphs into something different
that'll depend on how the economy evolves, and that will
probably ultimately depend on how the FED responds to this environment.
Speaker 1 (03:20):
When we have days where you know, markets are all
over the place, or periods of time when markets are
all over the place and the headlines start to get scary,
the first thing I do is click off the headlines
and click onto your recession index, because you are constantly
checking leading economic indicators that would likely point toward okay
if things are going to go south here for maybe
a longer period of time, we might see it in
(03:43):
this recession scorecard.
Speaker 2 (03:44):
So what is that telling us at this point right now?
Speaker 3 (03:49):
It says we have a medium level of risk when
we look out over the next six to nine months,
and what we're looking at specifically is a compilation of
many different indicators and whether or not those are signaling
a recession. We're not signaling a recession currently. About forty percent,
(04:11):
not about exactly forty percent are signaling an economic slowdown.
And that's right on the precipice of whether or not
it would say, hey, recession is high risk. If we
got above forty percent, then we would be in that
high risk level. Right now, well, we're not there yet.
I mean, some of the things that are signaling the
(04:32):
red flags, if you will, the yield curve, which is
the difference in interest rates ten year minus the two
year treasury rates. Also the number of jobs we call
hard to fill if that's trending down, and that's what
it is, it's harder to fill certain jobs. You know.
Those are some of the leading indicators that are watching.
There's many other things we're watching. Some are on the
(04:53):
green side too, by the way, suggesting not a red flag,
but what we want to look at is the weight
of the evidence, and what that currently shows is a
medium level teetering on the verge of a high level risk.
And that's why I really do think a lot will
depend on how the FED responds.
Speaker 1 (05:12):
You're listening to Simply Money presented by all Worth Financial.
I'm Ami Wagner, joined by Andy Stout, our chief investment officer.
As we try to dig deeper into what's going on
as your four O one cas have likely gone.
Speaker 2 (05:23):
A little bit south of the past few days, right,
is there a reason to worry a little more long term.
Speaker 1 (05:29):
Or is this panic that maybe some of you are
feeling a little more of a short term thing. Andy
is sharing his perspective with us, you know, fantastic perspective,
you know, Andy, as we talk about your kind of
recession scorecard, I think it's also worth mentioning that in
this sort of post pandemic economy, sometimes things that.
Speaker 2 (05:49):
Would have historically made us feel.
Speaker 1 (05:51):
One way or the other about the economy aren't normal.
Like we're just kind of in an abnormal place, if
you will, Can you talk about that?
Speaker 3 (05:59):
Yeah, that's a rate point, Amy, I mean, if you
look at these recession indicators. There's another one that's gotten
a lot of news lately, and that's called the Sam Rule.
Without getting too much into the weeds, it really just says,
if the unemployment rate has been rising at a certain
pace compared to its low over the past twelve months,
then we're either in a recession where ones really close.
(06:21):
That rule was triggered last Friday from the unemployment rate
jumped up to four point three percent. However, to your point,
if we look at many of these other different indicators,
they've been just quite honestly wrong in this post COVID environment,
just because of how the economy has responded, and there's
(06:43):
just been a lot of nuances and complications and the
recovery out of COVID. From an economic standpoint, there's nothing
else to compare it to. And so what we're normal.
What we're seeing with these normal indicators that suggest, you know,
a slow down or be on the lookout for the
world coming to an end, you'll take them with a
(07:04):
grain of salt this time around. Now, with all that
being said, I mean, there are too many of them
to outright ignore. I think you have to be mindful
of what's going on and just be ready to adapt
to the situation in terms of making sure you have
an understanding of the market and how cycles work, because
when it comes to the end of the day, this
(07:25):
is still an economic cycle. This is still a market cycle.
World moving cycles, and my cycle might not be exactly
like it was in the past. But we'll have our
ops or economic expansions, marketing rallies, we'll have our downs
that could be a correction or a bear, market, economic recessions,
those things happen, right, It's about making sure you don't
(07:46):
panic along the way, because that's that's really the thing,
because what you can end up doing is really missing
out on some of the biggest gains when you let
your emotions take over. Because one of the big emotional
pitfalls that people have on the when markets are going
down is essentially this what's called loss of vergen So
(08:07):
you feel the pain of a loss a lot more
than the benefits of a gain, and that really results
in a desire to sell after decline has already occurred.
Speaker 2 (08:18):
So this kind of leads to sort of emotional discipline.
Speaker 1 (08:21):
We speak so much on the show about fear and
greed and how many terrible decisions people make because of
those two particular emotions when it comes to money. So
when you put yourself in the past few days, you know,
markets all over the place, you.
Speaker 2 (08:37):
Know down all these things globally.
Speaker 1 (08:40):
In here in the US going on. What do you
say You mentioned panic when you were just talking.
Speaker 2 (08:47):
What do you say to those who.
Speaker 1 (08:48):
Feel panicked and feel like they need to do something
with their money as the result of those feelings.
Speaker 3 (08:54):
I would say to those people, take a step back
and get some information on how markets have reacted in
the past, because if you understand cycles, you'll be less
likely to be driven by them. For instance, you should
expect volatility almost every year. If you go back to
(09:14):
nineteen eighty, the average drop during a year from a
high to low price on US large cap stocks is
fourteen percent. We're not even close to there. That's the average.
Despite that average drop of fourteen percent, on all calendar
years going back to nineteen eighty, markets were up eighty
one percent of those years, and the average return at
(09:35):
the end of the year was about twelve percent. So understand,
volatility happens. It's normal. Uh, But you know you're going
to have times when the market will go down and
stay down. It's you know, roughly nineteen percent of the time,
so for a calendar year. So just knowing that, but
then knowing that markets recover. Right, if you look at
(09:56):
market performance after a drop, just to give you one example,
you say, let's just say the S and P five
hundred falls twenty five percent. What has happened in the past.
Over the next three next one year, I guess following that,
(10:16):
you see the markets have an average return of eight
of twenty seven percent, So you're you're recovered almost almost
exactly what was lost. So when markets go down, they
will come back up. And you have to understand the
cycles and that will allow you to stay invested, because
if you miss some of even the smallest number of
(10:37):
best days, you're really hurting yourself. Just to give you,
I know number soup isn't always fun, but just to
give you an example, say you had a million dollars,
all right, and you invested it twenty years ago. You
would have seen that million dollars turn into about six
point four million dollars if you were invested in large
(10:58):
cap stocks. Now, if you panicked and you got out
in what you if you missed even just the ten
best days instead of having six point four million. You
have two point nine million. You just lost about three
million dollars by panicking.
Speaker 1 (11:15):
You literally cut your money in half by taking it
out of the markets, because you don't know when those
good days are.
Speaker 3 (11:20):
Coming exactly, and it's really important to understand how markets operate.
That way, you can avoid the pitfalls of fear, which
is what we're in now, but also the pitfalls of greed,
which will come back, because you don't want to have
that fear of missing out. So hopefully you stay diversified
(11:40):
because that's really important too. And didn't put all your
money in the video. While granted you probably if that
were to happen, you probably did pretty well. But what
you see is asset diversification will help preserve your money,
so you want to make sure that you're diversified properly.
Speaker 2 (11:59):
Yeah, magnificent seven. That maybe isn't so magnificent right now.
Anyone who went all in on that might be hurting.
Speaker 1 (12:05):
Anyone who's properly diversified will rebound from this much more quickly.
Andy your perspective, we always appreciate it, but certainly on
days like this, I think it is more valuable than ever.
Here's the all worth advice. Listen, There's always going to
be reasons to pull your money out of the market
that you can convince yourself. Just remember that long term
perspective and what Andy just said right, missing the best
(12:27):
days in the market, that's what hurts you. Coming up next,
the steps to take if your financial advisor tells you
they're retiring. You're listening to Simply Money, presented by all
Worth Financial here in fifty five KRC, the talk station
Tonight, we have some critically important context about the market
volatility we have seen recently that you aren't going to
get anywhere else.
Speaker 2 (00:15):
You're listening to simply money presented by all Worth Financial.
I'm Amy Wagner.
Speaker 1 (00:19):
Choose your word cratered, plunged, tanked, melted down, sunk, real, jolted, crashed, routed.
I also saw panic recently on that list, and I
just saw that one. So before you panic, we're going
to take a collective deep breath, lean in. We've got
all Worth chief investment Officer and eased Out joining us
(00:39):
today because we know this has not been the start
of a normal week, normal several days. You know, Andy
manages twenty billion dollars worth of money, so when there
are market fluctuations, Andy, we.
Speaker 2 (00:52):
Know you are paying very very close attention.
Speaker 1 (00:56):
I want to start with this. First of all, headlines
are very very scary. If some of them make it
feel like we're starting into something that's going to be
long and terrible and many times kind of like we've.
Speaker 2 (01:07):
Never seen before. What's your perspective? Is this maybe short
term volatility?
Speaker 1 (01:12):
Is this something longer term that we're going to be
And I understand you don't have a crystal ball. But
from what you're seeing, what's your gut tell you here?
Speaker 3 (01:20):
Well, I think right now it's probably more of a
short intermediate term thing to worry about. However, there are
potential catalysts that could make this a longer term, but
we're likely not there yet. I mean, if we look
at just what's been happening, I mean there's essentially three
reasons that all came together, all at the same time
(01:43):
that caused this volatility. You had the belief that the
US economy was simply unstoppable, but when we got the
Jaws report on Friday and we saw the unemployment rate
go from it was at three point seven the start
of the year now it's at four point three percent. Also,
was the thought that AI would revolutionize the world. Well,
(02:05):
earnings have been coming up from these big tech companies
and they're not making any money off of it. So
there's some question questioning around AI right now.
Speaker 2 (02:13):
Not quite revolutionizing yet, right.
Speaker 3 (02:16):
Not yet? Right. And then there's the Bank of Japan,
which has been thought to have been a docile entity
and not you know, raise raids, or at least not
raise them too much. But they've already raised I'm not
talking about cuts here like we're talking about here in
the US. Their central bank has raised rais twice this year,
and it's likely they'll raise them again. Those three all
(02:36):
happened at the same time, essentially, and that just caused
a domino effect. Now the question becomes to answer your question,
does this transform from a risk off trade into more
of a recession induced prolonged bear market. Right now, we're
(02:59):
looking more at the risk off scenario, But that doesn't
mean there want to be more pain in the short term,
right I mean, we have a volatility that's normal, and
we can talked about that in a bit, But the
question of whether or not it morphs into something different
that'll depend on how the economy evolves, and that will
probably ultimately depend on how the FED responds to this environment.
Speaker 1 (03:20):
When we have days where you know, markets are all
over the place, or periods of time when markets are
all over the place and the headlines start to get scary,
the first thing I do is click off the headlines
and click onto your recession index, because you are constantly
checking leading economic indicators that would likely point toward okay
if things are going to go south here for maybe
a longer period of time, we might see it in
(03:43):
this recession scorecard.
Speaker 2 (03:44):
So what is that telling us at this point right now?
Speaker 3 (03:49):
It says we have a medium level of risk when
we look out over the next six to nine months,
and what we're looking at specifically is a compilation of
many different indicators and whether or not those are signaling
a recession. We're not signaling a recession currently. About forty percent,
(04:11):
not about exactly forty percent are signaling an economic slowdown.
And that's right on the precipice of whether or not
it would say, hey, recession is high risk. If we
got above forty percent, then we would be in that
high risk level. Right now, well, we're not there yet.
I mean, some of the things that are signaling the
(04:32):
red flags, if you will, the yield curve, which is
the difference in interest rates ten year minus the two
year treasury rates. Also the number of jobs we call
hard to fill if that's trending down, and that's what
it is, it's harder to fill certain jobs. You know.
Those are some of the leading indicators that are watching.
There's many other things we're watching. Some are on the
(04:53):
green side too, by the way, suggesting not a red flag,
but what we want to look at is the weight
of the evidence, and what that currently shows is a
medium level teetering on the verge of a high level risk.
And that's why I really do think a lot will
depend on how the FED responds.
Speaker 1 (05:12):
You're listening to Simply Money presented by all Worth Financial.
I'm Ami Wagner, joined by Andy Stout, our chief investment officer.
As we try to dig deeper into what's going on
as your four O one cas have likely gone.
Speaker 2 (05:23):
A little bit south of the past few days, right,
is there a reason to worry a little more long term.
Speaker 1 (05:29):
Or is this panic that maybe some of you are
feeling a little more of a short term thing. Andy
is sharing his perspective with us, you know, fantastic perspective,
you know, Andy, as we talk about your kind of
recession scorecard, I think it's also worth mentioning that in
this sort of post pandemic economy, sometimes things that.
Speaker 2 (05:49):
Would have historically made us feel.
Speaker 1 (05:51):
One way or the other about the economy aren't normal.
Like we're just kind of in an abnormal place, if
you will, Can you talk about that?
Speaker 3 (05:59):
Yeah, that's a rate point, Amy, I mean, if you
look at these recession indicators. There's another one that's gotten
a lot of news lately, and that's called the Sam Rule.
Without getting too much into the weeds, it really just says,
if the unemployment rate has been rising at a certain
pace compared to its low over the past twelve months,
then we're either in a recession where ones really close.
(06:21):
That rule was triggered last Friday from the unemployment rate
jumped up to four point three percent. However, to your point,
if we look at many of these other different indicators,
they've been just quite honestly wrong in this post COVID environment,
just because of how the economy has responded, and there's
(06:43):
just been a lot of nuances and complications and the
recovery out of COVID. From an economic standpoint, there's nothing
else to compare it to. And so what we're normal.
What we're seeing with these normal indicators that suggest, you know,
a slow down or be on the lookout for the
world coming to an end, you'll take them with a
(07:04):
grain of salt this time around. Now, with all that
being said, I mean, there are too many of them
to outright ignore. I think you have to be mindful
of what's going on and just be ready to adapt
to the situation in terms of making sure you have
an understanding of the market and how cycles work, because
when it comes to the end of the day, this
(07:25):
is still an economic cycle. This is still a market cycle.
World moving cycles, and my cycle might not be exactly
like it was in the past. But we'll have our
ops or economic expansions, marketing rallies, we'll have our downs
that could be a correction or a bear, market, economic recessions,
those things happen, right, It's about making sure you don't
(07:46):
panic along the way, because that's that's really the thing,
because what you can end up doing is really missing
out on some of the biggest gains when you let
your emotions take over. Because one of the big emotional
pitfalls that people have on the when markets are going
down is essentially this what's called loss of vergen So
(08:07):
you feel the pain of a loss a lot more
than the benefits of a gain, and that really results
in a desire to sell after decline has already occurred.
Speaker 2 (08:18):
So this kind of leads to sort of emotional discipline.
Speaker 1 (08:21):
We speak so much on the show about fear and
greed and how many terrible decisions people make because of
those two particular emotions when it comes to money. So
when you put yourself in the past few days, you know,
markets all over the place, you.
Speaker 2 (08:37):
Know down all these things globally.
Speaker 1 (08:40):
In here in the US going on. What do you
say You mentioned panic when you were just talking.
Speaker 2 (08:47):
What do you say to those who.
Speaker 1 (08:48):
Feel panicked and feel like they need to do something
with their money as the result of those feelings.
Speaker 3 (08:54):
I would say to those people, take a step back
and get some information on how markets have reacted in
the past, because if you understand cycles, you'll be less
likely to be driven by them. For instance, you should
expect volatility almost every year. If you go back to
(09:14):
nineteen eighty, the average drop during a year from a
high to low price on US large cap stocks is
fourteen percent. We're not even close to there. That's the average.
Despite that average drop of fourteen percent, on all calendar
years going back to nineteen eighty, markets were up eighty
one percent of those years, and the average return at
(09:35):
the end of the year was about twelve percent. So understand,
volatility happens. It's normal. Uh, But you know you're going
to have times when the market will go down and
stay down. It's you know, roughly nineteen percent of the time,
so for a calendar year. So just knowing that, but
then knowing that markets recover. Right, if you look at
(09:56):
market performance after a drop, just to give you one example,
you say, let's just say the S and P five
hundred falls twenty five percent. What has happened in the past.
Over the next three next one year, I guess following that,
(10:16):
you see the markets have an average return of eight
of twenty seven percent, So you're you're recovered almost almost
exactly what was lost. So when markets go down, they
will come back up. And you have to understand the
cycles and that will allow you to stay invested, because
if you miss some of even the smallest number of
(10:37):
best days, you're really hurting yourself. Just to give you,
I know number soup isn't always fun, but just to
give you an example, say you had a million dollars,
all right, and you invested it twenty years ago. You
would have seen that million dollars turn into about six
point four million dollars if you were invested in large
(10:58):
cap stocks. Now, if you panicked and you got out
in what you if you missed even just the ten
best days instead of having six point four million. You
have two point nine million. You just lost about three
million dollars by panicking.
Speaker 1 (11:15):
You literally cut your money in half by taking it
out of the markets, because you don't know when those
good days are.
Speaker 3 (11:20):
Coming exactly, and it's really important to understand how markets operate.
That way, you can avoid the pitfalls of fear, which
is what we're in now, but also the pitfalls of greed,
which will come back, because you don't want to have
that fear of missing out. So hopefully you stay diversified
(11:40):
because that's really important too. And didn't put all your
money in the video. While granted you probably if that
were to happen, you probably did pretty well. But what
you see is asset diversification will help preserve your money,
so you want to make sure that you're diversified properly.
Speaker 2 (11:59):
Yeah, magnificent seven. That maybe isn't so magnificent right now.
Anyone who went all in on that might be hurting.
Speaker 1 (12:05):
Anyone who's properly diversified will rebound from this much more quickly.
Andy your perspective, we always appreciate it, but certainly on
days like this, I think it is more valuable than ever.
Here's the all worth advice. Listen, There's always going to
be reasons to pull your money out of the market
that you can convince yourself. Just remember that long term
perspective and what Andy just said right, missing the best
(12:27):
days in the market, that's what hurts you. Coming up next,
the steps to take if your financial advisor tells you
they're retiring. You're listening to Simply Money, presented by all
Worth Financial here in fifty five KRC, the talk station
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