What, Me Worry?

XPYRIA Team Insights

What, Me Worry?

James P. Tomasovich, CIMA®, AAMS® XPYRIA Team Insights

With the recent market pullback this year, and numerous economic uncertainties, it’s no wonder investors have been concerned. Whether it is the war in Ukraine, higher gas prices, soaring inflation, or the tumbling markets, there has been plenty to worry about. 

So, let us take a look at how the consumer feels, and their expectations for the economy moving forward. The longest running measure of this data is the Michigan Consumer Sentiment Index (MCSI), which is a survey based on telephone interviews, dating back to the 1940’s. The survey questions consumers on their views of personal finances, as well as the short and long-term state of the U.S. economy. Because consumer spending makes up such a large amount of GDP (over two-thirds, here in the U.S.), many businesses and investors consider it to be one of the numerous important indicators on the future of the economy.

Where are we today?

Source: FactSet, Standard & Poor’s, University of Michigan, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Past performance is not a reliable indicator of current and future results. Guide to the Markets – U.S. Data are as of September 30, 2022.

As you can see from the chart above, the average consumer is feeling poorly about the current state of the economy. In fact, the June 2022 reading of “50.0” was the lowest reading ever recorded, lower than that of the recessions of both the early 1980’s and 2008-09. Therefore, per the survey taking the pulse of the nation, we have never felt worse about our financial and economic futures!

This reminds me of the Warren Buffett quote: “Be greedy when others are fearful, and fearful when others are greedy.”

As we dig into the chart details a bit more, we see another number beside the reading. This “%” is the growth/decline of the market over the next 12 months, following the noted highest and lowest readings in the past 50 years. As you can see reviewing the returns after we have “felt the worst”, they have been considerably positive! Looking back at the 8 low points in the past 50 years, the market has bounced back with positive returns from +14.2% to +43.6%, over the 12 months following. Now, when will sentiment bottom out and when will the markets return to their previous highs? No one knows (although everyone likes to guess), so we need to be smarter than trying to predict it.

So what does this mean to you and your plan? Whether we feel our most optimistic or pessimistic about the markets and economy, history has proven to us that the most effective approach is to create a sound long-term investment plan and stick with it. Taking in consideration your personal spending habits, annual budget, short and long-term spending needs, and ability to save, will put you on the path for planning success.

About the Author

James P. Tomasovich, CIMA®, AAMS®

Senior Client Advisor

Mr. Tomasovich is a Senior Client Advisor at XPYRIA, and a member of the Firm’s Investment Committee.  He has fiduciary responsibility in client relationships, requiring actions and recommendations to be based on the best interest of the client.  Jim advocates for his clients in designing and maintaining cost effective financial strategies, reflecting the unique needs and objectives of each relationship.