July's Live Market Update with CIO, Scott Mitchell

If you could have a candid conversation with financial advisors who have decades of experience helping professionals, business owners, and families just like yours plan for their financial future, what questions would you ask? I'm Chip Munn, financial advisor, author, host, and CEO of Signature Wealth Group. For decades, my partners and advisory teams have had the opportunity to answer the tough questions for hundreds of our clients. Now we want to do the same for you. On the Signature Life Show, you'll hear answers to your burning and most perplexing finance, investing, and retirement questions from our Chief Investment Officer, Senior Wealth Advisors, Certified Financial Planners, and more. We aren't just financial advisors. We're parents, children, community leaders, and entrepreneurs with a passion for helping empower our clients to live life intentionally, what we call a Signature Life. John Tate, what's up, man?

Chip Munn, happy Friday to you, sir.

Thank you very much. It's always a good entry to the weekend to spend some time with you. And it's that time of month, John, that not only do I get to spend time with you, we get to have Scott Mitchell on to update us, whether we like it or not, on the stock market. Scott, how's it going, man?

I'm doing really well. How about you guys?

Good, good.

Appreciate y'all having me on.

Well, hey man, it's good to have you. Let's jump into it. So we're kind of at the halfway point. And so again, whether we like it or not, first half of the year's in the books. And I'm curious to get us rolling. What happened? What are your thoughts so far on the year? And then we can get into what's next.

What happened was it was just a really rough first half of the year with stocks and bonds both doing extremely poorly. It was the worst, rather, first half of a year for the stock market since 1970. And then bonds had nearly an equally poor first half of the year. And then on top of that, we had the highest pace of inflation in about 40 years. So it really just did not add up to a great first half of the year for almost any investment. It was hard to hide. Usually when we put together portfolios, we use the tried and true principles of asset allocation that You want to be diversified and you want to have different asset classes, some stocks, some bonds. But as I said in the first half, it just really didn't matter whether you were stocks or bonds or how diversified you were. It was just going to be tough to make money or tough really not to lose money.

Yeah. Tate, what's been your experience? I mean, what have you found either that worked even a little bit, or just generally, is your take much different than that? I don't know that it could be.

I mean, much like my newfound mustache is a throwback to the '60s, I always look at a time like this as a tie-down to the spaghetti Western that I watched with my dad growing up, The Good, the Bad, and the Ugly. Certainly, the stocks were the ugly so far year to date, the bonds were the bad, and it has been really hard to find anything good other than the fact that as far down as we come in both of those markets, As overly negative as all investors and consumers seem to be, the bad and the ugly could turn out to be the good that leads us forward and leads us higher in both of those things from here. But there's been nowhere to hide anywhere in the portfolios, and it's been tough sledding so far year to date.

Interestingly, the bad and the ugly are often what Chip and I are referred to. I'm not sure who is who.

I don't know that I'd ever want to be the bad, except for in that scenario. So my wife did tell me yesterday that I needed to quit trying to be the pretty one these days. So maybe I'll just take on the moniker of the ugly. But yeah, it's interesting because I had a meeting yesterday, and at least for a lot of clients, one of the things with experienced investors that unemotionally they know that this happens. And we reiterate that a lot, how often these kinds of downturns happen, and we've all been here before. And in a lot of cases, they have personally experienced it and know it to be true. But one of the crazy things about this year and any time we go through something like this is that emotionally, when we're going through it in the moment, It's easy to completely forget that. David from our office and I were having lunch with somebody yesterday, and they were referring to last month's video where we offered some perspective, and they said, "It was really just good to hear that because it reminded me that it was true." And I think that, again, for experienced investors and for us, I mean, we do this for a living. It doesn't mean it feels good when we talk about it being tough sledding or nowhere to hide. Doesn't make it fun. It just is the price that we pay for long-term higher returns. So Scott, as we're looking into where are we, or what are your thoughts as to where we are now and kind of where we're headed? What is potentially next?

Yeah. And to maybe follow up on a point you just made, in the stock market, you have to take the bad with the good. And if there was no downside to stocks, they'd look more like bonds or CDs, and then the returns would be somewhat muted. So, you know, everything we do to try to reduce risk in a portfolio, really in our lives, also has the probability of reducing the returns or the upside. So I think it's just a matter of fact with stock investing. And for sure, we try to be prepared. There are signs and indications of what might be ahead, but again, sometimes you just can't get around it like this past 6 months. So as far as what's ahead, I've just looked at a lot of indicators and maybe it's kind of like trying to predict the weather. You just take the best information you have and you put it together into kind of some probabilities. When they tell you that it's a 90% chance that it's going to rain that day, that doesn't mean that it's it's definitely going to rain that day, right? Or if it's 10%, that doesn't mean that it won't rain that day. I think the indicators right now show that we'll likely have a recession. We could certainly have an argument that we're already in a recession. Does it really matter to investors? We had a lengthy call with a lot of the advisors yesterday at Signature Wealth, and I think we all agreed upon, I don't know as though it really matters to investors whether there's a recession or not. It, regardless of what it is, it feels bad. So given our thoughts on the current bear market, on possible recession, we're trying to be more defensive. I know in a lot of our portfolios, we've reduced the risk a good bit. And then on top of that, even in our stock portions, we want to be defensive in those too and buy companies that are probably not going to have a great deal of financial stress through this situation. They're already financially strong companies. So for sure, that may mean their stock price goes down. That's somewhat out of anyone's control, but it does mean that I like their odds of getting through a recession and coming out fine on the other side. So that's really what we're trying to do right now is just shore things up, batten down the hatches, and kind of wait this out.

It's interesting, Scott, you mentioned the weather analogy, and when I talk about it, I usually talk about the long term. I can't tell you what's going to happen necessarily. I might give you an idea of what might happen tomorrow based on the radar, but I can tell you that 7 out of 10 days it's going to be sunny kind of over the course of your lifetime. Like, there's enough data for that. But one of the things that struck me, because I think it really matters in the practical application of this, is that you were talking about they say there's a 90% chance of rain tomorrow, but that means there's also a 10% chance that it won't. Also, it struck me that to some extent you see what you're looking for. So some people see the 90% chance of rain and other people see 10% chance of sun. And so to some extent, your overall attitude about whether you're optimistic, pessimistic, or everybody likes to think that they're realistic, but to some extent you find some confirmation a lot of times based on your general either position or disposition. And so I do think it's important as we look out, if we want to find positive news, we certainly can find it. It's not pouring down outside. To the extent that we know for certain, it never is. And so I think that what we know historically speaking is that over the long term, things work out. Historically, they always have up until January of this year. I mean, and there's no reason to feel like this time is any different. It makes sense to me to focus on looking for the positive so that you can begin to feel better. Because again, most of the people out there making news, talking on TV, they're just trying to keep us watching. And the thing that keeps most people watching is fear. And if you're looking for negative stuff, I mean, there's plenty of stuff out there to find. Tate?

Yes. And if you walk outside and walk into a rainstorm, it's very easy to assume that it's going to keep raining like that. It might keep raining like that for days. I mean, to the worm inside the apple, the whole world's an apple kind of thing. So it's easy to get that sense that because things are bad now, that they're going to remain that way for an extended period of time. So at the end, it's our job to remind people that there will be a light at the end of the tunnel. There will be sunshiny days again, and things will get better. And to that point, and since we're talking about percentages and 90% chances and all of those things, if you look at the two quarters that we've had leading up to this point, both quarters in the stock market, I think were 15% down in a row. And then also from top to bottom, the S&P has fallen more than 20%. And so if you look at those two separate incidents and you look at where the stock market ends, those are highly unusual circumstances, not only to happen by themselves, but also happen at the same time. But when you look at the stock market, historically speaking, 6 and 12 months down the road, 12 months down the road, 9 times out of 9, since the end of World War II, the stock market has been higher and not only just higher, but higher on average by 20 to 30%. And so there is a reason to believe that things will— they may seem bad today. You're going to walk outside, you're going to feel rain on your head. It doesn't mean— I'm not telling you it's not raining. I'm just saying the rain's not going to last forever. And so we need to be prepared for that. And the other thing I try to remind people, the other reason to stay invested and not consider cashing out as your option to avoid that pain and anxiety of emotional loss, is that over time, 40% of the return of the S&P comes from dividends. The only way you can collect those is by staying invested. And so that's one of the things I think that's, you know, I know Scott looks for in the investments that he does stay in, the ones that he chooses, is that current income stream that not only can fund what you're taking out, but can also be used to either reinvest at lower prices that we're seeing right now, or just simply give you a return while you're waiting for things to get better.

So Scott, speaking of getting better, give me some good news.

Well, we are in fact already starting to look at the other side. So what's going to happen after this bear market is over? And I think there's really two sorts of investors. The one sort is the folks that have a longer-term time horizon and can be patient and don't mind so much these pullbacks and maybe even see them as an opportunity to buy good stocks at cheaper prices than they used to be at. And I think for those folks, definitely want to be making a list of things you want to own. Dollar cost averaging into stocks makes a ton of sense where that's kind of where you buy an equal amount on a monthly or quarterly or semiannual basis. For investors that are more nervous or have a shorter-term time horizon, maybe they look at their statements every month or every quarter and get concerned about them. Maybe now's not the time to start to get aggressive just yet. But yeah, to John's point, it's not going to rain forever. Every recession we've ever had, every bear market we've ever had, we've come out of, and that'll be the case again this time. And recessions are like yard sales, right? Good chance to buy things that you want to own cheap, and we'll have that chance again this time, and that'll set us going forward for the next decade.

Well, and I think that, again, if we can find ways to take emotion out of it, and for me, getting data like what both of you shared. 9 out of 9, John, is a pretty good batting average.

Better than I ever got.

Well, same here. But I think that that perspective allows us to focus on the long term. And I think, again, as I was listening to you talk, Scott, for most of us, our time horizon is longer than we like to think in terms of when and how we're going to need the money. I talk to folks all the time. Who are healthy in their 60s, and statistically speaking, they've got a couple decades easily to live, if not longer. And the statistics are the longer you live, the longer you'll live. As you make it to each age band, you're significantly more likely to live even longer. I mean, it just is a genetic thing. And what I see a lot of times is people look at whatever their next event is. Whether that is, I've got to put a kid through college, or I'm going to retire. And that's in a lot of cases when we're talking about periods, that's the beginning of the period, not the end of the period. And those are dramatically different when you're looking at what you're investing for. You're investing for getting through the entire period, not getting there to begin with. I think that's one of the things that is important for us to remind people again, in times like these. And so be mindful. If you're tech savvy enough to be listening to a podcast or on the internet, listening to it somewhere on YouTube, or if you opened your email and you got a copy of this in your email, the chances are your timeline is probably longer than you think it is. Lord willing, as they say where I come from, Lord willing and the creek don't rise. I mean, it's one of those things that it's easy to mentally shorten our time horizon to whatever the shortest possible next need is. But in reality, what we're planning for and what we're investing for are almost always a good bit farther. Run through the tape, I think, as the track coach used to tell me, because at 290 pounds, I mean, they always, John, wanted me on the track team. Run through the tape. And that's where we are now in investing, is we need to run through the tape because the goal is on the other side of that front end.

July is the month of the year that President Carter gave his Crisis of Confidence speech and talked about the general malaise. You can read any part of that speech by itself, and you could probably trick yourself into thinking that it was a speech that our current sitting president was giving because a lot of the themes are very similar. But if you think back to where the country was then, the Michigan Confidence Index is at a lower level today than it was when he gave that speech back in 1979. So I think all this negativity, all these negative expectations, it really doesn't get much worse than this. So you never want to say that it can't go lower, but I think the odds of it going lower from here and not seeing some kind of improvement are relatively low.

Scott, all that being said, I'm curious, and you may have some other commentary before that. I really would love my favorite part of the show, the traffic report.

Yeah, I think it's still a yellow light. A flashing yellow, you come to the intersection, be prepared for cross traffic, make sure that you don't nudge out and run over by a truck coming at you. So I think patience is going to be key right now. There's going to be chances, I think, to buy good stocks at attractive prices. I'd say don't get fooled by rallies. Bear markets like we're in are full of rallies and they can be powerful, But they usually trick people into investing at a higher price than they might get. So, you know, I'd advise being careful of doing that and being judicious. You don't, you don't have to buy every stock that's out there. Focus on good ones, companies that you think will be around for a long time, and buy those. There's a lot of those that are on sale. So you can proceed forward, just do so with caution and patience and be judicious.

As you were talking about the stocks, I think a big part of any kind of time where you're dealing with a lot of inputs. Yeah, I'm a big believer in limiting your inputs and what information you're taking in and where from, but it's also incredibly important when things feel out of control to sit down and make a list of the things that you can, you can control. In the case of that discussion, Scott, you as the person who manages most of our portfolios, you manage most of those with discretion. You can control which things you buy and when you buy them. As a consumer, for me, as somebody who doesn't run our portfolios, there are a lot of things that I can control. I can control what I buy and when I buy it. I can control how much I decide to drive to some extent. Everybody has things, discretionary spending. There's a time and place for everything, and we do have control over a lot of things. And a big part of maintaining sanity when there's a lot of things that feel like you're out of control is just doing the next right thing and controlling the things that you can.

Sounds like he's going to be out of the office today and not getting in the car, Scott.

Yeah.

Yeah.

Sorry, Scott, I can't come into the office. Gas prices. So I think that may just become my answer for things. It's just, sorry, gas prices or sorry, inflation.

Good. Well, I'm glad you brought up inflation because I was going to mention this. John, it was interesting that you brought up the Jimmy Carter speech. What year did you say that was?

1979.

'79, okay. And are you familiar with the misery index?

Yes.

Yeah, it equals the unemployment rate plus the inflation rate. So right now our misery index is a bit over 12, about 12.2. And so I went back and looked, and so in 1979, when Jimmy Carter gave that speech, the misery index was 17. And in 1980, the year following that, it was almost 21. And it's interesting to me how people, I think, are caught up in how bad things are right now. And in reality, this misery index of 12 or so where we are, we were roughly here in 2011, 2010, the early '90s. So this isn't certainly not as bad as it was during those late Carter years. In fact, it's lower now than it was during any of the Carter years. During the first 3 or 4 years of the Reagan administration. So it's not that bad. Chip, you asked for some good news, and inflation's high, but it's not always going to stay this high. The unemployment rate is extremely low, layoff rates very low. So there is a lot of good out there, and I would advise people to keep things in perspective that it's been a lot worse than it is right now.

Well, and I think the worst bad situation is the one you're in right now. That's just the way it always is. It doesn't matter how bad it was back in the '70s. It feels to me like the worst time I've ever been in is the bad time I'm currently in. And that's true in investments and that's true in lots of areas in life. And so in closing, I think that's the important takeaway is I feel like we've given folks a lot of perspective, but it's also, it's just realistic. The word that I tend to use is yucky. And sometimes things feel yucky and I get that. But it's also just a fact that no matter how bad things have been in the past and that we have come through, and we have to remind ourselves specifically of those things, it always feels like the worst bad time we're in is the one we're currently in because we're currently there.

Do something for me, Chip. You know, you've seen my crazy spreadsheet where I've got all these indicators and they grab real-time data. But unfortunately, I don't have a way to quantify yucky. If you could sort of figure out a way, give me some sort of index that I can throw in there and it can be a combination of gas prices and Clemson's football record and whatever it is and put that together for me so I can add it into my spreadsheet.

I will do that. And I'll also try to figure that out so that perhaps over time we can track it like the traffic report. I'll come up with what the mix is for the yucky index. And again, I'm just a big believer, man, that the easiest thing to do with our feelings is to name them, introduce them to other people. And it makes it for me a way to, again, keep my sanity. The other way I'm going to keep my sanity is to get outside, to do things with my family, to not worry about— because if you look honestly and I sound like maybe Deepak Chopra or one of those folks, if you're just in the minute that you're in, for most of us, those minutes are really good right when we're in them. The problem is spending too much time in the past worrying about stuff that already happened or worrying about things that haven't even happened yet. One of my granddads used to call it borrowing problems. And so the Bible says tomorrow will have enough worry of its own. And so most of us, if you just be in the moment that you're in, it's pretty doggone good. Sometimes it's just hard to remember that. Tate, let's do it again next week.

Yes, sir. We'll see you then.

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