Should You Still Own Stocks in This Current Bear Market?
Bottom line in today’s economy, TINA is dead. TINA, who is she and how is she dead? Tina is one of those acronyms that they've come up with in the last year. Why is it the stock market has been doing so well? It's because interest rates were so low. If you were trying to generate income and you're looking at a bank CD or a government Treasury paying zero point nothing, well, you could buy AT&T stock with a 4% dividend.
So people were supporting the stock market because of TINA. There Is No Alternative. That's what TINA stands for. But that's not true today.
Why? Because the Fed's been raising interest rates and US Treasuries are now 4%. You don't need to own stocks to get 4%. You can do it in a super safe government treasury. And therefore, with the death of TINA, since there now are alternatives, investors have no particular reason to own stocks in the middle of a bear market. And that's where stocks are, prices 20% below their highs.
By the way, before you get too upset about this, because I know you might be feeling a lot of doom and gloom at my commentary today... Stocks go into a bear market, meaning they fall 20% below their high, about every four years. But that hasn't happened to us in 14 years, since 2008. So we've been way overdue. You know, you throw it out of the mix because that was an artificial, crazy environment.
But now in 2022, not only are your stocks in a bear market, so are bonds. That is rare. The last time we had both stocks and bonds go into a bear market at the same time was 1990, 32 years ago, meaning you've personally probably never seen it happen. Bond funds year to date are down 12%. And in fact, if you owned long-term bond funds in the last 12 months, you've lost more money in bond funds- than in stock funds.
Yeah, long-term bonds have lost more money than stocks in the year ending August 31. But that's all over now.
So what's Wall Street saying about all this? BlackRock and Goldman Sachs are both warning investors to get out of the stock market for the next three months. Goldman Sachs said, "Current stock values may not fully reflect the risk and might decline further". BlackRock said investors should, "shun most stocks". Vanguard says you should expect just three and a half to five and a half percent per year for the next 10 years.
But maybe you're not going to sell like they're suggesting because you're not a market timer. You're a long-term buy and hold investor. Fine. Just make sure you stick with your strategy, because if they prove to be correct and prices fall and you don't sell now, won't do you any good to sell later in a panic after prices fall. So either sell now because you know you won't be able to handle all the volatility or promise yourself that you're not going to sell later when prices fall further.
Whatever your strategy, make sure you're willing to stick with it. And on the other hand, 88% of high-quality bonds are now trading at a discount. And JPMorgan says it's time to buy them. Citigroup is saying the same thing, saying to buy Treasuries to prepare for 2023. In a report, they said, "Unfortunately, we are heading for a turning point in the American economy".
Two High-Yield Options to Consider from BlackRock
But investors have not gotten the message from either JPMorgan or Citigroup. Instead, municipal bond investors are dumping their bonds at an unprecedented rate. Outflows this year have reached $84 billion, the most since 1992. In a year when Munis have lost 10% so far this year, they're on track for their worst year since 1981. Junk bond yields are now about 9%, double where they were in January. Two options you might want to consider if you want to get yields that are approaching double digits: the iShares iBoxx $ High Yield Corporate ETF (HYG) and the BlackRock Corporate High Yield Fund (HYT). Couldn't have done that six months ago, let alone a year ago. It demonstrates how rapidly this economic environment is changing and why you need to reevaluate your portfolio holdings.