Hello, and welcome to our market alert video for today, which is July 8, 2022, Friday. I hope you’re well. And I hope you have peace of mind, and that all is coming up in a beautiful way for you as the summer gets going.
This week we’ve entitled this video, “Who cares if we are in a recession?” There seems to be like this obsession with, “Are we in a recession?” “Are we not?” And to us, that is secondary. You know, as we look back over time, and we’re students of bear markets, as you know, we go back to the 1920s. We’ve had bear markets during that time, about one every three years. And about a third of them occurred with no recession at all. So, this obsession with whether we’re in a recession or not, and how it affects the stock market, to us seems to be a little bit of a media thing to get your attention and something to talk about.
What does drive bear markets? Well, by definition, the stock price of something goes down by 20%. That’s a bear market. What affects stock prices? In our view, its profits. If profits go down for a company, generally speaking, what happens is their stock price falls as well, whether they’re a lot of people employed or not, is not the issue. Now they’re related. But you can have for example, in Y2K, this was a very, very mild recession, hardly any unemployment came from that. But guess what happened? The S&P, the stock market, went down 49%. Okay, so and it took seven years to recover. So that’s why we think that this bear market has a long way to go before it’s over. And whether we’re in a recession or not, is not really the thing we should be keeping our eye on, in our view.
Now, I want to read you a letter that I saw that was in MarketWatch. And it came from a person, and he says this, “I’m a retired senior citizen, in less than a year, my retirement 401k is down 25% with less money to last me the rest of my life.” He says, “I get to pay 150% more for gasoline than the price at the beginning of this year, I get to pay 35% more for groceries, and home heating costs and 41% more for an automobile. and that’s just the tip of the iceberg.” He says they call that the misery index. So, obviously, he’s old enough to remember the misery index back in the 1980s. So, this person and many others like him, their purchasing power is significantly impaired, they have to spend practically all of their disposable money just on basics. And if they can’t spend it on all the, I’ll call them not necessary things, then what could happen is those companies that sell that stuff would see their profits go down, and therefore we see their stock price go down right with it. So, this thing is not over in our view, and we think it’s going to get worse before it gets better.
You’ve got lots of very countervailing winds, you got the Fed raising interest rates, and all the issues that that letter writer discussed. We think this is a time to be considering being safe rather than sorry. As you know, our philosophy is growth is important. But protection of principle is even more important. And our invest and protect strategy is one that told us to sell in November of 2007, before the credit crisis crash of 2008. It told us to sell literally the day before the pandemic was announced. And you know that during that time period, the S&P, the stock market, fell 43% from peak to trough. So, we don’t want that for you. And we think the Dow could go to 25,000 before this is over. That could be another 20% drop from here.
And my question for you is, could you endure that? Could you play through that without a problem? If you want to retire soon? Would you still be able to retire if that happened to you? If you’re already retired? Could that kind of a reduction and maybe years to recover, could that impact your standard of living and what you spend to live on?
All of those things we don’t want for you. So, visit with one of our retirement planners. Help us to help you. We want to go over with you, build a plan for you that is customized to your situation. And help you to think through this rationally, logically, with a professional, perhaps even giving you a second opinion over what you’re doing now. Our website is rpoa.com. And like I said, right now we think is a time to be playing defense, not offense. So, thank you for watching this video. We want you to have peace of mind. We want you to enjoy your second childhood without parental supervision. And again, our website is where you can go to hopefully help you do that. So, we’ll talk soon.