As I write the quarterly letter it looks like the stock market will have the worst first half start of the year since 1962. The bond market has not been a respite from volatility either with a double-digit YTD loss. Martha Reeves and The Vandellas song from 1965 is an appropriate theme song for the capital markets first six months of the year. Nowhere to run to baby, nowhere to hide.
Appropriate to talk about a song from the 60’s as I want to remind everyone what was going on the last time the markets had such a bad start to the year. That year was 1962 and President Kennedy was concerned about his narrow victory in the 1960 Presidential election running under the campaign slogan “Getting America Moving Again”. The problem in 1962 was Kennedy was laser focused on his 1964 election and the economy nor stock market (down approximately 23%) was going to give him the momentum he needed to go into the 1964 Presidential campaign. President Kennedy’s advisors asked that he address medical care for those over 65, address the nation in a fireside chat to alleviate concerns, ask business leaders to come forth and talk positive about their growth plans in the US economy and most importantly, cut taxes to jumpstart growth. President Kennedy initially declined. Then after about 6 weeks of strong-arming from his closest advisors agreed to go forward with the tax cuts. Kennedy proposed cutting the individual rates from their current ranges of 20-91% to 14-65% and to cut corporate taxes from 52 to 47%. Backlash in congress from Republicans and conservative Democrats of the day said that he could not cut taxes without cutting spending or you would balloon the deficit (at that time approximately $7 billion). President Kennedy disagreed saying “a rising tide lifts all boats”. Soon respected business leaders of the day came forth to talk about investments they were making in the stock market. The markets continued with minimal gains through the summer and then everything changed with the end of the Cuban Missile crisis in October 1962. People finally realized that Russia wasn’t going to invade nor bomb the US and therefore could invest in America once again.
The reason I tell this story (referencing the Kennedy library website) is because history often repeats itself. Today we have “Build Back Better”, Russia in Ukraine and threatening Europe, a weak stock market and a malaise from our businesspeople in their public comments as to an impending recession of doom and gloom. We have not learned anything from the past if we continue to make the same mistakes in the present. Never bet against America in the long run!
After a “flash crash” of down 5.7% in one day in May 1962, Kennedy asked the SEC to see what crimes were being committed. What the SEC found was that nothing out of the ordinary had occurred and no crimes committed. The markets were doing what they always do, repricing risk assets to their appropriate level. After a large run up in stock prices in the late 50’s and early 60’s, the market repriced risk by bringing valuations down. That is that what is going on today and no different than what went on in 1962. The repricing of risk is a normal and natural part of the business cycle and one that although painful gives good entry points for new investors and those that are dollar cost averaging and a revisiting of risk from those who may need their funds sooner as to the importance of cash reserves.
Have Faith, Have Hope and most importantly Have a Plan!
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