Here are some of the statistics we look at when we help clients make decisions about their portfolio. #engineering #financialplanning #stockmarket

1. Clearnomics Webinar - May 27, 2022
Paul Caylor, CDFA®, CFP®, CKA® | President & Wealth Advisor | May 27, 2022

3. • A key principle of long-term investing is keeping market volatility in perspective.
• This means not just focusing on recent performance, but on the broader context and different time
frames.

4. • While bear markets are unavoidable, bull markets are much longer with larger returns.
• Since 1956, the average bear market has lasted one year two months with a decline of 36%.
• In contrast, the average bull market lasts 5 years 9 months and returns 192%.

5. • CPI is a commonly cited measure of inflation. It uses a basket of goods and services to track price changes
for consumers.
• In order to measure the underlying trend in inflation, rather than temporary shocks to food and energy,
economists often focus on Core CPI.
• Inflation remains at four-decade highs due to strong demand and supply chain disruptions.

6. • Gasoline is an important and necessary expense for many Americans.
• Gas prices have been rising alongside oil prices and higher demand. Higher gas prices are a tax on
consumers.

7. • Corporate earnings growth has surged as the economy expands.
• S&P 500 earnings have reached new historic peaks and could continue to grow rapidly.
• Higher profitability could help to make valuations more attractive.

8. • This chart shows the S&P 500 index alongside its trailing 12 months earnings-per-share.
• Over the long run, the stock market tends to follow earnings. If earnings are rising, investors are willing to
pay more per share.
• Earnings, in turn, tend to track economic growth. Thus, a healthy economy tends to result in a rising stock
market.

9. • The economy officially fell into recession in early 2020 for two months due to the economic shutdown
from COVID-19.
• Prior to this, the economy had been experiencing the longest cycle in history, surpassing the decade-long
cycle of the 1990s
• The economy is now at record levels and growing at a rapid pace.

10. • This chart shows the year-over-year percent change in an index of leading economic indicators.
• This indicator usually turns negative several months before a recession. This also happened prior to the
current crisis.
• This pattern is also evident over the prior seven recessions and is the result of the economic cycle.

11. • Despite the large number of unemployed workers, businesses are still having trouble hiring.
• This may be due to a mismatch in skills, geographies, and high unemployment benefits.

12. • The yield curve has steepened this year as the recovery continues, inflation returns and interest rates rise.
• The Fed continues to keep policy rates near zero, pinning down the short end of the yield curve.
• Steepening yield curves are often associated with the early phases of business cycles.

13. • This chart shows the implied rates and number of hikes/cuts based on fed funds futures at future Fed
meetings.
• Fed funds futures are an important real-time gauge for what the market expects from the Fed.
• The Fed has begun to hike rates and the market expects an acceleration in both the number and size of
these rate increases.

14. • The Fed has used its balance sheet to spur the economy by buying financial assets and providing liquidity
to the system.
• The Fed has increased its balance sheet to record levels but is no longer making new purchases.
• Allowing the balance sheet to run off could cause further rate tightening.

16. • Generating income from safe investments has been challenging since the global financial crisis.
• The Fed has kept rates low, putting additional pressure on the income generated by cash - e.g. CDs and
savings accounts.
• Adjusting for rising inflation, most savers are still losing significant purchasing power by holding cash.

17. • This PE ratio uses next-twelve-month earnings estimates, an important indicator when earnings are
rising.
• This valuation measure is still elevated but has improved this year.
• Investors should exercise caution and properly diversify across asset classes, both in the U.S. and globally.

18. • U.S. stock valuations have improved due to the Q1 market correction but are still higher than average.
• Valuations had been near historic highs. However, rising earnings steadily brought valuations down.
• Investors should remain properly diversified both in the U.S. and abroad due to valuation differences.

19. • Some technology stocks have been high-flyers over the past several years, significantly outperforming
the broader market.
• A group of these has come to be known as FAANG: Facebook, Amazon, Apple, Netflix and Alphabet
(GOOG). Others are often included too.
• Many of these stocks reflect long-term themes based on technology innovation.

20. • Cryptocurrencies have garnered the attention of individual and institutional investors alike.
• They have been much more volatile than traditional stocks but also behave quite differently.

21. • While the overall market has been volatile recently, not all sectors have responded the same.
• As earnings grow, it may benefit many sectors which are expected to experience double-digit profits
growth.

22. • This chart shows bear market pullbacks since World War II. These are 20% or worse drops in the market.
• The average bear market sees the market fall -35.8% from peak to trough, taking about a year and a half.
• Recoveries from these levels usually take 2 years, 5 months. The recovery from the recent crash required
only about 6 months.

23. • Staying invested when markets become volatile is important to achieving long-term gains.
• This chart shows the effect of exiting the market for different durations of time immediately after -2%
market days.
• Deciding when to re-enter is difficult and often results in worse performance than simply staying invested
in the first place.

24. • This chart shows the historical risk and return profiles of various stock/bond portfolios.
• For instance, while an all-stock portfolio has the highest return, it also has the most volatility.
• Selecting the best stock/bond allocation depends on personal characteristics and financial goals.

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