Resolute, Part I – The Stock Market

May 09, 2023

The turning of the calendar from April to May marks approximately 480 calendar days from the S&P 500’s previous high[i].  During this time, stocks have lived in bear market territory for more than half of those days[ii]. To add insult to injury, bonds suffered a similar fate as the Federal Reserve has waged a monetary policy war against inflation.

Long-time BCM clients might recognize the following description of our All-Weather Balanced Strategy:

“The design of BCM’s All-Weather Portfolios consists of asset classes, such as, stocks, bonds, precious metals and cash, which have historically exhibited different performance tendencies throughout varying economic conditions. The goal of the strategy is to hold a balance of these asset classes over the long-term with the hope that over shorter time periods they will maintain their historical tendency to react differently to changes in the economy.”


Having endured the past year of commotion in the financial markets, one might be inclined to ask, “What gives?”  Or, more pointedly, “Does this strategy still work?”

Answering this question requires digging a little deeper into the individual components, starting with stocks.

Why continue to own stocks when they’ve declined in value and headlines suggest the US economy could still be headed for recession?

When we invest in equities, we are investing in real companies, employing real people, selling real products and services, with a profit mandate from their shareholders (that’s us!). 

When economic conditions get tough, these companies have no choice but to adapt so they can continue to meet this profit mandate.  They are forced to buckle down and become exactly the kind of lean, profit-producing companies we want to own in the first place, positioning themselves for stronger performance when economic conditions improve.

While this concept is logical in hindsight, it is extremely difficult to time.  We may, or may not, be headed for a recession.  This can only be known after the fact (recessions are officially declared after they’ve already begun).  What’s important for us, though, is that if we are headed for a recession, it’s certainly no secret.  As a general rule, if it’s in the news, it’s in the price.  (More on this to come – stay tuned.)

Investing in stocks involves risk, which is the price investors pay to realize investment gains over time.   

While it can seem counterintuitive to continue to bear the risk of temporary stock market drawdowns during retirement (when investors become most reliant on their savings), this volatility is the tradeoff for productive growth over their investing lifetimes.

While the stock market can be a significant wealth-builder in the long run, it can test investors’ nerves in the short run.  The trick is sticking with it when it’s toughest.

Stay tuned for Resolute, Part II – The Bond Market.