investing

Will It Be March Madness in the Stock Market?

Markets have been crazy. For perspectives about what may be next, turn to … basketball. Believe it or not, college basketball’s championship tournament may hold insights for investors.

So far, Ukraine, inflation, and interest rate worries are moving markets. Still to come are the November midterm elections and possibly a new spending and tax bill. Given this gloomy backdrop, you may be asking: How should I invest for the balance of the year?

 It’s a good question. One I’ve been getting more frequently lately from clients. To help, in the spirit of the annual college basketball tournament, I’ll share a few investment insights and trends worth watching.  

Longtime underdogs shine

As of the end of February the S&P 500 was down 8%. Higher-growth stocks like technology stocks are companies that typically reinvest their dividends for future growth. Those stocks fared much worse as they were disproportionately impacted by rising interest rates and were coming off higher starting valuations. Value stocks – companies that pay dividends to their shareholders, i.e., financial and energy stocks – have long underperformed growth stocks but have held up better recently in comparison. Value has outpaced growth by about 9% as of the end of February.

In basketball terms: Score one for the underdog.

It's all about defense

In the movie Hoosiers, Coach Norman Dale (Gene Hackman) hollers at his players “I’ve seen you guys can shoot but there’s more to the game than shooting. There’s fundamentals and defense.” If Coach Norm was an investor he might be thinking of defensive stocks. Consumer defensive stocks are stocks that typically provide dividends and have had stable earnings or where there is constant demand for a company’s products. Utility providers like natural gas, or food and beverage companies, or healthcare providers can be considered consumer defensive.

Why consider defensive stocks? Higher energy prices and higher interest rates may stymie growth this year, or worse lead us into a mild recession. If that happens, in my opinion, companies best suited to thrive may be providers of consumer products we just can’t live without.

Have poise

Coach John Wooden is a college basketball legend, winning 10 national championships in his last 12 seasons at UCLA before retiring. He shaped his winning philosophy into the “Pyramid of Success” – traits he felt important for his players to have. Near the top of the pyramid is “poise.”

Poise, in the words of Wooden, means “Don’t be thrown off by events, whether good or bad.” This is true in the investment world. Poise in investing means not being rash, not making knee-jerk decisions, but rather putting emotions to the side and thinking clearly, logically. Now is the time for poise.

Final thoughts

There’s a long way to go till the end of the year. We are only in the first quarter. Given the market’s swoon, you might want to call timeout and ensure your asset allocation matches your goals and objectives.

It’s never too late to do a sanity check. If you were thinking of rebalancing, moving from growth stocks to value, the market probably already did that for you in January, but it doesn’t hurt to check. You want to know in which sectors are you over- or underexposed. Do you have too much tech? Do you own defensive stocks?

If you haven’t already, consider tax-loss harvesting. Tax-loss harvesting is selling and booking a loss to offset a gain elsewhere in the portfolio to help reduce your tax bill.

Now is also a good time to review your bonds.  What is the credit risk? What is the interest rate sensitivity? You have to know the details. As Coach Wooden once said, “It’s the little details that are vital. Little things make big things happen.” The same principle applies to investing, know the details.

The author provides investment and financial planning advice. For more information, or to discuss your investment needs, please click here to schedule a complimentary call.

Summit is not responsible for hyperlinks and any external referenced information found in this article. Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Investors may realize short-term capital gains on temporary positions using a tax-loss harvesting strategy. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. 

About the Author

Michael Aloi, CFP®

CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 21 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients.  Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

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