Why There Is So Much Tension in Markets

Interviewer:
Joining us now to address some of the anxiety that investors might be feeling, given all the market uncertainty, is Kim Englis, senior portfolio manager at Raymond James. Well, Kim, what are you seeing in markets right now from a big picture perspective? And why is there so much tension?

Kim Inglis:
Yeah, definitely a lot of tension right now. With investors, I mean, you know, just the US trade policy uncertainty index is pretty much at record highs. Not surprising given all the headlines going on. So of course, this is causing a lot of uncertainty in the markets. And markets don't like uncertainty. And so you're seeing a lot of panic selling.

You're seeing investors selling things regardless of quality. But I think for investors it's really important to put things into context, particularly when, you know, you have so many headlines, and to remember that volatility actually is quite normal. If you look at the data going back to 1980, the average intra year drawdown for the S&P 500 is about 14%.

So volatility is normal. It's just that sometimes headlines can make volatility feel abnormal. And I think that's what investors are feeling right now.

Interviewer:
That's a good point. And you said before Kim that emotions can be one of the biggest risks to investors. Could you explain that a bit more for us?

Kim Inglis:
Yeah. So you know, I believe that investor emotions, you know, can be their worst enemy. Really. And it's it's because if you let them get in the way of things, that can be a big detriment to your performance. Investor emotions are actually from a behavioral finance standpoint, from, you know, investor psychology is actually very consistent and repeatable.

And it's something that's referred to as the cycle of investor emotions. And it basically, classifies how people feel at different stages of the market cycle. Anywhere from euphoria, the market tops to complete despair. You know, this is never going to return, at the market bottoms and investors go through the same sorts of feelings and emotions at different stages in the market.

And so if you can, recognize those emotions, to then recognize essentially where you're at in the market cycle, you can you can help, avoid having emotions, be a detriment to your portfolio performance.

Interviewer:
And of course, some investors might think, oh, it's safer to sell and wait until things settle down. But what's your take on that strategy?

Kim Inglis:
Yeah. You know, that's that's pretty much market timing. And in, in theory, that would be great if you were able to time getting out of the market and then getting back in. But the reality of it is, is that it's it's pretty much impossible to do consistently. You might get it right, getting out, you know, once or twice.

But the thing is, is that it's so difficult to then get back in. And that's because the best days in the market are typically clustered around the worst days of the market. So, you know, if you've scared yourself out of the market and you're sitting in cash on the sidelines, it can be very difficult to then pull the trigger, and try to get back into the markets when, you know, the media will have you thinking the sky is falling, you're much less likely to pull the trigger and get back in.

You know, and studies have shown that if you miss, you know, just ten of those best days, which, again, are clustered around the worst days, it can have a, big impact to your long term returns. It can cut them about in half. You know, and from a market timing perspective, it's just, you know, not worth it.

The studies will back that off as well. You look at studies done by Nobel laureate William Sharpe, and he found that basically to be, you know, a half decent market timer, you'd have to be right about 74% of the time. And that's just, to match what a buy and hold investor would have done. So, you know, at the end of the day, it's just, not not worth it.

Interviewer:
And you spoke about people sitting on the sidelines in cash. We know that there are a lot of people, doing that. And if you look at the trillions of dollars in money market funds, what would you say? With so much uncertainty right now, is now even a good time to invest, or should people be waiting, sitting on the sidelines?

Kim Inglis:
Yeah. That's probably the question I get asked the most often right now. I would say, and, you know, interestingly enough, I came across a study recently where they basically took, you know, a theoretical perfect market time or someone who always managed to somehow invest at the market bottom. And then they ran the numbers for someone who theoretically was the absolute worst market timer and always just only invested at market tops.

And, you know, to figure out what was the difference between the two of them. And interestingly, the performance between the two, wasn't that different. It was offered by about 1%. And, you know, realistically, you know, you're never going to be the worst and you're never going to be the best. You're probably going to be somewhere in the middle there.

So that difference is even even less. So I think that the, you know, basically key message from, from that or the key takeaway from that would be that it's more time in the market than timing the market that matters. And the most, you know, successful investors are the ones that, consistently invest. They stay invested through the market volatility and they tune out the noise.

Interviewer:
And what about the risk of a recession? We're hearing so much, about this right now. Should people be concerned?

Kim Inglis:
Yeah. So I mean, recessions are obviously always, a concern for people. But this is another one where I think it's important to take into context as well. You know, recessions are very much a normal part of, of, economic cycle. And they actually don't happen all that frequently since 1948, there have been 12 U.S recessions, and they've averaged about, ten months.

And interestingly, during a recession, the return for the S&P 500, has been about 3.5%, about 20% a year later and 53% three years later. So, you know, I think that investors need to remember that markets, you know, just like people are resilient and they do, you know, figure out a way to to get through things.

Interviewer:
Finally, Kim, for those who are, sitting on the edge of their seats right now, what's the main takeaway for investors who are feeling a bit uneasy right now?

Kim Inglis:
Yeah. You know, I think that it's really important for investors to not let their short term fears dictate their long term decisions. And remember that the markets, you know, they're going through a lot right now, but they have been through a lot. You know, in over history, you've seen markets deal with major events like the financial crisis, Covid, you know, Hitler and the the world wars.

And the markets have, you know, moved on and they can move pretty quickly even, you know, in this case where the tweets and, you know, I think that oftentimes people say, well, this time is different. One thing that can be said with certainty is this time is not actually different. Certainly there's, you know, different causes for market volatility and crashes and all sorts of thing.

The financial crisis was very different from Covid, different from, you know, the dot-com bubble. So the cause of market volatility is always different, but the outcome is never different. The markets recover. And it's never a question of, of if it's a question of when.

Intervierwer:
Welcome. Thank you so much for being with us today. And thank you to everyone watching. Once again, that was Kim Inglis with Raymond James. And I'm your host, Jenna Dagenhart with Asset TV.