Don't Panic: A Bull Case for Equities Caterpillar

In light of recent market swings discussed in the article, Caterpillar employees should keep a conservative portfolio,' said the report. Adapting your Retirement strategy to weather market volatilities can protect your future financial security without sacrificing growth as you approach Retirement, says Tyson Mavar of the Retirement Group.

Given recent steep dives in both stocks and bonds, Wesley Boudreaux of the Retirement Group says Caterpillar employees should do some serious financial planning. This mitigates risks and positions you to profit from market recoveries - a resilient investment strategy in the face of economic uncertainty. '

In this article, we will discuss:

1. Market Volatility and Retirement: How market fluctuations affect retirees' savings and why a diversified investment portfolio is important.

2. Historical Market Recovery: History of how stocks have rebounded from corrections and the value of historical data in predicting market trends.

3. Economic Fundamentals and Projections: The robustness of U.S. economy fundamentals and their ability to contain short-term market volatilities.

DON'T PANIC

Several studies suggest that extreme market volatility may be especially difficult for retirees or those approaching retirement age to recover from possible losses. According to a report in October 2021 from Fidelity Investments, market volatility could wipe out retirement savings of up to 26% for those in their 60s. That underscores the need for a diversified investment portfolio and a solid retirement plan that reflects possible market volatility.

Stocks are off to among the worst starts in history for both markets. The S&P 500 Index was down 12.92% and other broad market indices were down double digits through April 2022. (1)

And worse than that, investors like those in Texas or New York are losing nearly as much as they are on the equity side of their portfolios. The Bloomberg U.S. Aggregate Bond Index measures domestic fixed income and posted its sharpest quarterly loss since 1980 to start the year (2) and is down -9.50% through April end. The current environment has left investors with nowhere to run and some have left markets or gone to cash - so we feel it important to bring this up with our Caterpillar clients.

A hasty reaction could leave investors missing out on a rebound, since historical equity performance following market corrections and solid underlying economic fundamentals point to a stock market rebound sooner rather than later. Contact retirement-focused advisors today if you're unsure of your situation.

A BULL CASE FOR EQUITIES:

OUR GUIDE - HISTORY. The S&P 500 entered correction territory again 22 trading days after exiting; it makes its fastest return to negative 10% performance since November 2008, when the Great Financial Crisis began. (3) For our Caterpillar clients, the table below excludes periods where a correction turned into a bear market and shows how the S&P 500 fared after exiting a correction. In the S&P 500, the average gain after exiting a correction was nearly 14%, based on data going back to 1928. (4)

Not every bad start to the year is indicative of things to come, we remind our Caterpillar clients. It marks the third worst start to 2022 for the S&P 500 Index.

In spite of this, stocks recover nicely after the worst starts - on average - and rise 10%. Double digit gains are certainly possible in the last eight months of the year based on statistics for our Caterpillar clients. (5)

FOR MARKETS IT IS A BULL CASE: STRONG ECONOMIC FUNDAMENTALS Aside from historical performance that backed a second-half rally in equities, fundamentals for the U.S. economy remain solid. Demand resilience, robust corporate and consumer financial positioning, and rising earnings may provide shock absorbers during the near- to medium-term volatility that market observers expect to remain.

Initial expectations for first-quarter economic development showed a surprise contraction. US real GDP lost 1.4% (adjusted for inflation) from +6.9% in the previous quarter. This sharp slowdown was due to a drag from exports, a drop in inventory spending after a large uptick in the prior quarter and, less notably, in government spending. Moreover, consumer expenditure grew at a healthy pace - it makes up almost 70% of the U.S. economy. Personal consumption grew by 2.7% from 2.5% in the previous month, with increased expenditure on services. Over the previous decade, consumer spending grew an average of 2.3% per year. (1)

Business investment jumped by 9.2%, the highest level in a year - another positive economic indicator. If companies accelerate automation and investment to cope with persistent labor shortages, the broad momentum in capital expenditures should continue. Overall, the extremely constrained labor market and wage growth help consumers. We think consumption will continue to support above-average economic growth this year as the effects of the pandemic are easing - and remind our Caterpillar clients of this. One last caveat: economic growth can differ greatly from stock market growth - as the markets currently stand.

Trying to predict the market by selling existing positions and entering a supposed 'safer' environment usually results in a big loss for shareholders. Investors do best if they stick to a plan, weather market downturns with conservative, risk-adjusted asset allocations, and remain invested through the turnaround when the biggest gains materialize.

Economic Definitions GDP is the ultimate market value of all goods and services made in a nation. It is the most used economic indicator. GDP by expenditure method measures total final expenditures at purchasers' prices excluding exports minus imports. This assumes inflation.

Index Definitions S&P 500:

The S&P 500 (r) is the best single indicator of large-cap U.S. equities and the basis of an enormous range of investment products. It includes 500 major companies and represents about 80% of market capitalization.

The Bloomberg Barclays US Aggregate Bond Index measures the investment-grade US dollar-denominated, fixed-rate taxable bond market. It contains Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS, and CMBS (agency and non-agency).

The investment is like gardening. As a gardener would plant, tend and prune his plants, so must an investor take care of his investments. You need patience, diligence & a long term vision. As a gardener might face drought, pests or extreme weather, investors face market volatility, inflation, and economic downturns. But with planning, diversification, and periodic adjustments both gardeners and investors can reap great rewards. Time and effort pays off in a satisfying harvest.

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Sources:

1. Fidelity Investments.  'Fidelity Wealth Management - Perspectives on Inflation.'  Fidelity , 30 Apr. 2022,  www.fidelity.com .

2. Fidelity Investments.  'Fidelity 2023 RSA Executive Summary.'  The News Market , 2023, preview.thenewsmarket.com.

3. Lannan, Kelly.  'Fidelity® Q3 2021 Retirement Analysis: Retirement Savers ‘Stay the Course’ in Spite of Stock Market Swings and Ongoing Economic Uncertainty.'  Business Wire , 2021,  www.businesswire.com .

4. Fidelity Investments.  'Market Volatility Resources and Insights.'  Fidelity Institutional ,  www.institutional.fidelity.com .

5. Fidelity Investments.  'Navigating the Current Environment.'  Fidelity ,  www.fidelity.com .