Is This Rock Bottom?

I was once asked how you know when you’ve hit rock bottom.

I didn’t have a profound answer then. And how could I? Well, by the time I was 20, I was at my lowest. I had lost three parental figures in my life, within a ten-year span. I felt absolutely lost. One night I undoubtedly lost control of my emotions. 

I still have the scar on my forehead to prove it. 

But there’s always a reason to become pessimistic. 

Sometimes, no matter how hard we try, we can’t seem to catch a break.

It’s hard to get noticed. At least the way you want to be seen. — How about one failed relationship after another. Can’t quite manage to find the one that rounds your circle. At some point, you even ask yourself, “is it me?” — All things considering, they say the economy is actually doing quite well. “So why am I losing my job?” 

Or, maybe the once overly-optimistics’ spirit has been beaten down so much that it has become unrecognizable. 

Recently, I was reminded of that same question after reading Kayla Tackett’s short on pessimism. She says, “it’s amazing how many people look at the darker side of life.” 

It’s not that these people hope for the worst. On the contrary, they may even have a more realistic grip on life. But over time, that realism can unknowingly turn into sustained pessimism.  

I get it. It’s hard not to look at everything happening in the short-term, personally or economically, and not want to shut the door on what is left to come. 

But this is the time to be focusing on the upside.

Current economic situation

The Michigan Consumer Sentiment Index is a monthly measure of the average person’s feelings toward their current financial situation and the economy. 

Unfortunately, June’s reading fell to its lowest recorded levels to date. 

Joanne Hsu, Chief Economist at the University of Michigan, concludes that “about 79% of consumers expected bad times in the year ahead for business conditions.” Also, consumers have felt the most uncertainty over long-run inflation since the early 90s. 

Look, the Supreme Court has just made a life-altering decision for women. Food and gas prices just hurt, and we’ve been dancing around the idea that we may or may not go into recession. Believe me, I get it. 

You can look at the YTD performance of virtually any chart and think it screams, “get out while you still can!”

But think about it. 

If you’re investing, it’s because you have an extended time horizon. Now is the perfect time to deploy some excess cash rather than hoard it. The further the market declines, the higher your future expected return. That portion of your money in stocks right now — which was consciously put at risk — is not meant for today. If it were, it would be in cash. Instead, it was set aside for tomorrow, understanding that this may periodically happen. 

Secondly, this is the first time in a long time that stocks and bonds declined in the same year. But we have to think about why

Bond yields have been in the basement since roughly 2008. Now, we can finally look to receive an attractive enough yield on low-risk and risk-free assets like bonds, savings accounts, and even money market funds which could yield more than 3% by the end of the year. It could take a while and may be painful, but the Fed is actively fighting this inflation. 

And it hasn’t been that bad… yet. In his substack on economic data, Sam Ro says, “The good news is that the Fed, so far, appears to be succeeding in its effort to cool the economy without seeing unemployment surge.” 

In fact, when looking at payrolls and labor force participation, the job market is pretty strong. For example, the BLS jobs report shows that the U.S. added 372,000 jobs last month, considering we still added a whopping 390,000 jobs in May. Not to mention, the unemployment rate remained at an impressive low of 3.6%.

Ro adds, “The U.S. economy continues to add jobs at an impressive clip… Employers haven’t been able to hire fast enough to keep up with the booming demand for their goods and services.” 

The good/bad news is that job market statistics are lagging rather than leading indicators. Which means many people may still hold on to their jobs even if things continue to decline from here. Although, history has even shown that payrolls don’t tend to peak and then decline until months after a recession has begun. So there’s still a glimmer of hope that we may not get that far. 

All The Sh*t We Overreacted About

I’ll end with this. In his Pep Talk, Jonathan Clements reminds us to focus on four things during times like these: expectations, history, intrinsic value, and most importantly, time horizon.

Clements says, “this is where savvy investors get their edge. It’s tough to outsmart other investors. But we can play a different game – by focusing not on next week but on the next 10 years. Does anybody doubt that a globally diversified portfolio will be worth more a decade from now?”

I say it all the time, but this is one of my favorite charts we’ve ever produced. I frame it as look at all the shit we overreacted about.

Although, of course, I can’t deny that some of these events didn’t feel terrifying when they were happening. As if they didn’t have significant economic, political, or environmental effects, such as the B.P. Oil Spill, Brexit, or even as recent as when the U.S. government shut down. But despite all this, the market continues to endure. 

And that’s what good investors do. They endure.   

I can’t say for sure if this is rock bottom or not. We’ve been seeing some patches of green lately. In fact, the market is still up relative to the pre-Covid peak. However, the Fed is likely to impart another considerable rate hike, and stocks could continue to fall for the rest of the year. But what I can say for sure is that this is not the time to lose control of our emotions. 

In that same year of my lowest, I also started this little rinky-dink blog. And that decision ended up changing my life. 

There’s always a reason to be optimistic. We just have to endure long enough to find it. 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

No Responses