These times may be bad, but they’re not ‘different’

This time it was almost different.

For me, anyway. For you, the first half of 2022 might have been unlike anything you’ve ever seen and lived through before.

That’s not hyperbole, that’s what the numbers tell us.

But the story we are all living through now is not something unheard of and unseen before in our lifetimes, no matter what the numbers say.

For proof, let’s dig into the stock market’s first half of 2022, statistically the worst first half of a year most working investors have ever seen.

The Standard & Poor’s 500 lost 20.6% during the first half of 2022, their worst performance in the first six months of a year since 1970. June alone saw a decline of 8.4%, the worst June since 2008.

Ten of the 11 sectors measured by the index were down during the period, with the energy sector being the lone bright spot. The market’s high-water mark was set on Jan. 3, the first trading day of the year; the trend has been downhill ever since, with inflation, rising interest rates, a global supply-chain crisis, war in Ukraine, the lingering effects of COVID-19 and more all taking some of the blame.

But as of June 29 — one trading day short of a full six months — the index was on pace for the worst six-month start to a year since 1962.

That was the six-month stretch during which I was born, so the market was a whisker away from the worst six-month start to a year of my lifetime. Instead — since I turned 8 in 1970 — it’s just the worst start to any year since I started investing.

That’s “different,” but only because it sets a new extreme.

Change a fraction of a percentage point here or there and it’s not “the worst,” but instead is another bad quarter in a lifetime that’s seen a bear market roughly every five years.

In trying to size up why things feel different right now, it’s easy to feel like the differences are permanent, as if higher prices and interest rates, stock and bond markets in simultaneous decline, a recession in the offing and more are here to stay.

Those conditions are bad; they’re just not different.

All of us will live through a “best market” in our lifetime, and a worst one too. It’s a good talking point to say “the worst first half I have ever seen,” but it shouldn’t have been a surprise.

This is the economic slump you always prepared for, the decline that motivated your asset allocation and diversification decisions, the expected downturn that motivated keeping emergency and short-term moneys at the ready while investing for the long haul.

Mind you, it’s a pretty safe bet that the third quarter will be down this year as well. Beyond the current trends, we’re in the worst calendar year of the four-year presidential cycle and the current quarter is historically the most volatile of that cycle.

Thus, history is telling us to expect things to keep falling.

But history also says the tune will change, possibly as soon as the fourth quarter.

“The fourth quarter of the midterm election year, combined with the first half of the year after, have been the three strongest quarters within the 16-quarter presidential cycle,” said Sam Stovall, chief market strategist at CFRA Research in an interview on my “Money Life with Chuck Jaffe” podcast. Stovall noted that fourth quarters historically turn out well after bad first halves to a year.

Moreover, research from S&P Global showed that a bad first half is no precursor to trouble ahead.

 Anu Ganti, senior director of index investment strategy at S&P Global, said in an interview on my show that the firm studied bad starts to calendar years and “There’s really no correlation between first half of the year performance and second half of the year performance.”

 Don’t let recency bias — what the market’s done lately — dissuade you from long-term plans. Despite the market’s recent woes, the S&P 500 remains up over 10% annualized for the last 36 months, and up nearly 13% annually over the last decade.

For the vast majority of investors, the plan is working when they stay put and ride out times of market dysfunction. While specific current events were not planned for, their potential outcomes were.

There is no one right way to manage your money and handle personal finances, but most people must balance short-term costs and obligations with intermediate needs, long-term goals and wants.

Experts say that any money you’re planning to use in the next five years should be in cash or cash equivalents. Yes, it loses purchasing power to today’s high inflation, but that’s the price for guaranteeing it’s there when you need it.

The money you will spend between five and 10 years from now — say you have college tuition or a wedding to pay for, or you are planning to retire in that window — should be invested to deliver more than the cash, but without exposing you to the vagaries of the stock market.

 The longer-term money needs to be exposed to the market, no matter how uncomfortable.

“If you define risk as loss of principal, by that definition keeping all your money in cash is really risky because … you lose principal especially when we are in a high inflationary environment,” says Paula Pant, host of the “Afford Anything” podcast. “If you had money in cash, your purchasing power — what that money can buy — this year is 8% less than it was last year. That money is gone. It’s done. Deal’s over. So if you think that you ‘can’t afford to lose the principal,’ you need to hold [long-term] money in the type of asset that would give you a reasonable likelihood of not losing that principal over a 10-year period.”

For most people, that means sticking with the stock market, using low-cost, broadly diversified investments, and waiting for the times to prove — again — that they’re not different, that the next part of the cycle is a recovery and bull market, no matter how far away and distant that feels right now.