Taking the Stairs Up & the Elevator Down

July 4, 2024

As we reached the halfway point of 2024, stocks have continued their climb higher. The first 6 months of the year have been void of volatility, as the grind higher has felt like climbing a staircase, one step at a time.  

That’s the thing about bull markets; they tend to be boring and uneventful. But let's not mistake boring for weak. This bull market has been strong, with stocks up 16% year to date (as of 7/1), and more than 54% since this run started in October of 2022.------> More Reading: How to Invest During An Election Year: We wrote about how election years tend to be strong for stocks!

Taking the Stairs Up & the Elevator Down

This is the perfect analogy to explain investing in both bull & bear markets.

  • Bull markets last long; about 4 years on average. Steady progress, like taking the stairs up.
  • Bear markets are quick, lasting about 1 year. Rapid descent, like taking the elevator down.

Keep in mind, stocks spend far more time in bull markets than bears, so staying invested is critical. This chart from First Trust displays the history of Bulls & Bears:

Bond Market Bear

While stocks have been racing, the bond market has been stuck in reverse.  In fact, this is the LONGEST drawdown bonds have ever experienced. Take a look at other notable bond market drops:


But WHY have bonds been so weak?  It's mainly tied to Interest Rates….as rates go up, the value of bonds go down.  And since July 2020, rates have risen substantially, putting stress on the bond prices.

Most investors hold a mixture of stocks & bonds, and the bond portion has certainly detracted from stock market growth. At the midway point of 2024, the bond market is down -0.38%.

So why do investors own bonds?

What if there's an "Election Correction"?

(For the record- I continue to be a huge believer in stocks. Volatility will come, we will keep buying....)

Our stocks have been making money hand over fist. But we know this won't last forever...markets go down sometimes too.

Think of bonds as your INSURANCE for your stock portfolio. Fast forward to November. Many believe the election could trigger a market crash.. the elevator goes down. The stock market drops by 20%.

The fed will likely cuts rates to halt a stock market decline. Economist are already forecasting rate cuts at some point this year, so a bear market could easily become their catalyst.

Bonds typically thrive when interest rates go down. Here's some recent history to explain what I mean.

Just last year, from Halloween to Christmas, the 10-year treasury rate dropped from 4.93% to 3.88%. Bonds rallied by nearly 7% during this stretch. And back in 2018, when rates dropped by 2.68%, the bond market skyrocketed (+18%).

The market falls-> the fed cuts rates-> bonds rise-> stocks eventually follow. (Rinse & repeat)

This is why we diversify; to hedge our bets against a future that’s unknowable.

Hopefully you find comfort in your current allocation, knowing your bonds will one day serve their intended purposes. The hard part is not knowing exactly when that will be! Tune out the noise, trust the process, & always be compounding!

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