You know I am not a big fan when it comes to talking specifically about investments and markets. This is because I am a financial planner and not a stock broker. I prefer to keep my investment updates to quarterly notes. However, with all the market volatility I figured I should share a few thoughts. And, for a bonus I am throwing in some gas-related thoughts.
- Over the last 70ish years, the average peak-to-trough drawdown is 13.6%. We are right in line as so far this year the S&P500 is down 13% from the peak.
- While not technically a bear market (down 20%), it certainly feels that way in a lot of individual holdings. Roughly 1/3 of individual US stocks are down 20% or more.
- With all this volatility it may be hard to recall how bad things were two years ago. I know I forgot how volatile those days were. We had a string where the market did -8%, +5%, -5%, -10%, +9%, -12%, +6%, and -5%.
- Overall, the Covid market saw a 34% decline and then the quickest doubling in the market in history.
- This feels more like a normal correction to me and is definitely a buying opportunity.
- There is a lot of psychology that goes along with how individuals act with investing. The market is one of those rare areas where most people like buying into it when it is up. I compare it to shopping for a new TV. Would you rather buy a model that is on sale for 10% or 10% above fair market value?
- We have to talk about gas prices since it is everywhere. I am going to try and give a little more insight than what you see on the nightly news.
- As of March 7th, the average price per gallon was $4.07. Yes, this stinks. However, it is not the highest in recent memory.
- In today’s dollars, it was over $5.30 a gallon back in June 2008. And we spent most of the first half of the last decade above the current $4.07 average. Again, adjusted for inflation.
- I’m reminded of the old economist joke. “A guy just filled up his car and says gas is too expensive to drive. Apparently not.” Economists are not known for great humor😉
- Oil production is projected to continue to increase over the next few years and return to the levels we saw late last decade. However, oil companies are being cautious.
- The energy sector was the worst performing sector in 7 of the last 10 years. Oil companies are now the best performing and they and Wall Street don’t want to return to the bottom of the performance barrel.
- Devon Energy was the best performing stock last year in the S&P500. However, from 2014 through 2020 it lost 90% of its value.
- At one point last week, Brent Crude dropped 13% in a day. This was the biggest drop in two years. Again, Wall Street does not want oil companies to go back to the boom and bust times from just a few years ago.
- The current administration actually outpaced the previous one in the number of drilling permits issued for public land and water during the first year.
- Short of nationalizing gas companies, I don’t think there is any way the President can force oil companies to increase production. I do not believe the oil industry wants to return to two years ago where oil was actually negative at one point. I know Wall Street does not want them to.
- Before the war in Urkraine, oil and gas prices were recovering quickly. Demand was outpacing supply as the world economy continued to recover from Covid.
- Going back to oil production, it is not just flipping on a switch. The number of active oil rigs is about 60% of the 2019 peak. Oil companies are also suffering from hiring issues as well as supply chain ones.
- Most of the oil coming into the US comes from Canada (and I thought it was just maple syrup in those tankers). Oil from Russia is a small percentage of what comes into the US (although it is much higher for other countries) and most Russian oil goes to Hawaii and the coasts.
Hopefully sharing a bit more information is helpful. If you are to only take away a couple of nuggets I would stress now is a buying opportunity for the markets and the President really does not control what you pay at the gas station. All I know is I am glad my last car purchase was a fuel efficient sedan and not the SUV I was also considering.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.