Patience is a Virtue | September 9, 2022

We are all aware at this point that 2022 is shaping up to be a tough one for investors. Frankly, after above-average returns for the previous 3-year period (2019-2021), it is not inconceivable that we were due for a sub-par year. Of course, the specific events that have shaped 2022 thus far have been unexpected to a degree. Unfortunately, markets are weakening again after a nice summer rally in late June and July, and we would not be surprised to see another tough month for stocks in September. Heck, it has already been a tough month and we are only 8 days in!

It almost seems as though 2022 was destined to be a challenging year for investors. As our valuable partners at LPL Financial Research have pointed out on numerous occasions, the 2nd year (2022) of the 4-year Presidential cycle is historically the worst. Additionally, the 2nd and 3rd quarters of the year are also among the worst. So, this year has played out to some degree as expected on a historical basis. However, while we think markets could very well see lower levels before September is over, we wouldn’t give up hope just yet!

As you’ll see in the Chart provided below (courtesy of LPL Financial Research), historically, the next 3 quarters are the strongest of the 4-year Presidential cycle. The 4th quarter of year 2 (Oct/Nov/Dec 2022) and the 1st and 2nd quarters of year 3 (Jan-June 2023) have averaged the highest returns during the 4-year cycle, dating back to 1950. So, while there are a lot of other variables in play that will move markets over the coming months, investors may be rewarded soon for riding out the challenging first 9 months of 2022.

One final potential silver lining is that the strongest 6 month period of the year starts in November. Generally, November through May produces higher returns than the more seasonally weak period of May through October (as the old saying goes, “sell in May and go away!”). Time will tell of course, but we think the evidence supports better days ahead, at least once we get through the next month or two.

“History doesn’t repeat itself, but it often rhymes” – Mark Twain

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