Skip to content
Weekly Insights
Subscribe
Volume 11, Edition 20 | June 20 – June 24, 2022

A Time for Emotionally Intelligent Investing

Doug Walters, CFA
Celebrating the strong investment performance this week is okay, but those emotions need to be left at the door when it comes time to plot your next portfolio move.

Contributed by Doug Walters, Max Berkovich, David Lemire, Eh Ka Paw

I’ll be the first to admit that it feels good to be writing Insights this week with stocks closing in the green. Six percent performance is a big week in any environment! While we can enjoy the moment, we know this could easily be another bear market head fake (but it still feels good).

Regular Insights readers might be surprised to read the emotions in the above paragraph. After all, we are evidence-based investors! Behavioral biases are the enemy, and emotion is not in our DNA! Right? Yes and no.

It is okay to be pleased when your investments are performing well and to cringe when they are not. What is not okay is if these emotions bleed into your investment decisions. It is all too common for bull markets to lead to excessive risk-taking. Suddenly everyone knows someone getting rich on a hot tip, crypto, meme stocks, or SPACs and wants in on the action. And when the bear market rears its head, investors are looking for “safe alternatives” and de-risking their portfolios. Without emotion, these common pitfalls are much easier to avoid.

Emotion’s impact on investing is well-researched. If you are like me and enjoy a good psychological study, check out this one by Shiv et al. (Investment Behavior and the Negative Side of Emotion). They used a unique group of participants with brain damage that inhibited their ability to feel emotion. The study showed that their investment decision-making was far superior to their emotional counterparts.

We cannot eliminate emotion (nor would we want to), but we can isolate them from our investment decision-making with an evidence-based process built on science, not speculation. So, the next time you contemplate a change to your investments, pause and ensure your motivation is logical and not emotional.

Insights_Cartoon_062422

Headline of the Week

Big moves in stocks and bonds this week, with both moving in the right direction for long investors. Stocks rallied, up over 6% on the week, while bonds were generally in the green. “Peak” narratives dominated economic commentary, providing our headline of the week.

  • Whether justified or not, investor attention turned to peak inflation and peak “Fed” narratives this week.
  • We will get a read on inflation with the PCE indicator next week and expectations now are that the peak may be behind us.
  • In addition, estimates for where Fed rates will be a year from now have come down, indicating increasing comfort that the Fed is successfully catching up to inflation.
  • Time will tell if this week’s optimism is justified, but investors have been able to catch their breath this week.

The Week Ahead

The last week of the 2nd quarter brings a sea of data releases. The big ones to keep an eye on are the 1st Quarter GDP final read and the Personal Consumption Expenditures Index (PCE).

Core Concern

The Personal Consumption Expenditures Price Index (PCE) is a key inflation gauge that the Federal Reserve prefers. Other economic releases include Durable Goods Orders, Personal Income, Consumer Confidence, House Prices, and Vehicle Sales.

  • April inflation was 6.3% year over year, declining from 6.6% in March, so another leg down in May will be a sign of easing inflation.
  • The “core” number excludes food and energy, which economists believe is the most volatile, came in under 5% in April.
  • A dip and another successive month under 5% would be good news for markets.
  • Core PCE estimates going into the report are for 4.8%.
  • The other inflation reading, Consumer Price Index, was stubbornly uncooperative, but the Producer Price Index did indicate some ease in inflation. A confirmation of that should help prognosticators to revisit their interest rate predictions.
  • Most of the other domestic economic releases, while important, should take a backseat to the inflation report.

For the Third Time!

The last and final read on the Gross Domestic Product (GDP) for the 1st quarter will be released on Wednesday.

  • This will not be a new number. The initial reads were for a decline of 1.5%. However, there may be positive revisions to some of the underlying data.
  • The decline in the early part of the year was blamed on inventories and trade, which most economists hinted understated the health of the economy.
  • If that analysis proves correct, we might be able to rebound in the 2nd quarter and avoid a recession (two consecutive quarters of GDP decline).

Going to the Mountains

The Federal Reserve has its end-of-summer Jackson Hole symposium. The European Central Bank will host its version next week.

  • The 3-day gathering in Portugal’s foothills of the Sintra Mountains gathers central bankers and academics to discuss views and policy issues.
  • Inflation and slowing global growth will be the central issue.
  • The forum will have speaking events from Federal Reserve Chairman Powell, ECB chief Christine Lagarde and Bank of England Governor Andrew Bailey, amongst the many other key monetary policy influencers.
  • With all that economic star power, the event is sure to be newsworthy.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $2 billion.

Overview

Disclosures

Strategic Financial Services, Inc. is registered with the Securities and Exchange Commission (SEC) as an Investment Advisor. The term “registered” signifies compliance with regulatory requirements and does not imply a certain level of skill or training.

The information provided on our website, including weekly market commentaries, financial planning articles, and other educational resources, is intended solely for educational purposes. It is designed to offer insights into financial planning and investment management, aiming to enhance understanding of financial concepts, strategies, and market trends. This content should not be interpreted as personalized investment advice or a recommendation for any specific strategy, financial planning approach, or investment product. Financial decisions are deeply personal and should be made considering the individual’s specific circumstances, goals, and risk tolerance. We recommend consulting with a professional financial advisor for personalized advice.

Please be aware that Strategic Financial Services, Inc. does not provide legal or tax advice. The content on this website is not intended to be used as such or as a substitute for legal or tax advice from a licensed professional. We advise seeking guidance from qualified legal and tax advisors regarding these matters.
Investment Risks and Portfolio Management.

The discussion of any investments on this website is for illustrative purposes only and provides no guarantee that the advisor will make any investments with the same or similar characteristics as those presented. The investments identified and described herein do not represent all the investments purchased or sold for client accounts. The selection of representative investments to discuss is based on various factors, including recent company news or earnings releases.

It should not be assumed that any investments discussed were or will be profitable. All investments involve risk, including the potential loss of principal. There is no assurance that investments mentioned will remain in client accounts at the time you view this information.

When index returns are mentioned on this site, they are provided as a general indicator of market conditions and are not representative of any client’s portfolio performance. Indices are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. Therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

While index returns are used as a framework to report on general market conditions, they should not be construed as an indicator of future performance of any specific investment or portfolio. Discussion of index returns is intended to provide context and insight, not to suggest that clients will achieve similar results. Each client’s portfolio is managed according to their specific investment goals and financial situation.

The opinions and any forward-looking statements expressed in the articles and videos featured in our resource center are as of the date of publication. These statements are based on current laws, regulations, market conditions, and other relevant factors, including third-party data. Given the dynamic nature of financial and regulatory environments, as well as potential changes in market conditions or economic circumstances, the information provided may become outdated or may no longer be accurate.
We rely on third-party data to form our opinions and projections, which means that these are subject to the same uncertainties that affect all data-dependent analyses. As such, we advise readers to exercise caution and not rely solely on the statements made herein for making financial decisions. It is recommended that investors consult with a professional advisor who can help assess the relevance and accuracy of the content in light of the current economic climate and personal financial situation.

Our website contains links to third-party websites as a convenience to our users. Strategic Financial Services, Inc. does not control, endorse, or guarantee the content found on such sites. We are not responsible for the accuracy, legality, or content of the external site or for that of subsequent links.
Contact the external site for answers to questions regarding its content.
The inclusion of any link does not imply our endorsement of the site, nor does it imply any association with its operators. Use of any such linked website is at the user’s own risk.

Related Resources