Q3 2022 Letter to Clients

November 27, 2022

Dear Client,

The third quarter of 2022 was a story of undulating market reactions to inflation news.  The S&P 500 bottomed out June 16th and began a brief recovery over the next two months.  Unfortunately, the CPI (consumer price index) report on August 10th showed that inflation is still stubbornly high, triggering a market sell off lasting until the end of the quarter.  The S&P 500 ended September 2.2% lower than the June low.   

On the good news side, prices for gasoline and copper2 decreased while consumer sentiment actually increased over the last three months.  On the down side, the Conference Board, a non-profit economic think-tank, increased its probability of recession in 2022 to 96%.1  So what to make of this?  Let’s just call it “murky”.    

Historically, a unofficial definition of recession is two consecutive quarters of negative GDP growth.3  That has already happened this year in the first and second quarters. 4  So by some measure, we are already in a recession.  The US government defines a recession more holistically, taking into consideration other economic indices.  In any case, a recession consists of less economic activity lasting for multiple months which is especially difficult in sectors such as travel, luxury goods, manufacturing, and real estate.6  A recession is usually accompanied with higher-than-average unemployment.      

So now what?  Does a recession mean bad returns of the stock or bond market?  That’s a loaded question for sure, but one that I’m sure many of you are asking.  Although the answer is unknown, a recession does not always bring substantial stock market losses.  Historically, the stock market has seen a -6% draw down and the bond market has seen a 9% increase during periods of recession.3 But obviously, a recession is not good for the bottom line on companies profit and loss statements.  If people are buying less of their goods and services, that does not bode well. 

How should we respond?  Patience is key.  Let’s remember to separate our emotions of the day, good or bad, with investment decisions for the future.  A question to ask yourself, “in 2, 5, or 10 years will I remember this economic situation”?  Most of us remember the difficulties of 2008 – 2009, now known as the Great Financial Crisis.  But can you remember 2018, when the market sold off 19%?  Or what about the “flash crash” of 2015 when the SP 500 dropped 11% in 10 days?  2011 had some craziness too, the SP 500 fell 16% during that year.  Remember those downturns?  Probably not. 

I’ve heard the phrase “the pain of losing is worse the pleasure of succeeding”.  We are all humans, we have emotions, and because of that we succumb to how we “feel” instead of what we know.   What we know is that market downturns occur regularly and a market recovery always follows if we are patient.  In fact, evidence shows that 3 years after a recession, the S&P 500 is up substantially.7  Most of the downturns will never be remembered.  But if we make long-term decisions on short-term information, we may remember the downturn because of the regret of what “could have been”.  Let’s just imagine the stock market as our 14-year-old son or daughter, things will get better.  Patience is key.  As always, please reach out to me with any questions or concerns.

As an FYI, I wanted to remind you of a few dates and events.         

  1. Join Lisa, Katie and myself for an open house at my new office on Thursday, December 8th, anytime from 4pm-7pm.  Stop by to say hello, have an hors d’oeuvre, enjoy a cup of cider, coffee, or hot chocolate, and check out my new digs.  It will be Christmas time, my favorite time of year!
  2. Roth IRA conversions must be done by December 31st, now is the time to move on this if you’ve been considering it. 
  3. If you’ve reached Medicare age, November 1st is open enrollment to apply for changes to Medicare Advantage plans or Medicare Supplements. 
  4. Remember to fund your Health Savings Account (HSA).  Maximum contributions are $3,650 per person, $7,300 for family.  An HSA allows you take a tax deduction on the contribution, then use the funds tax-free for health care needs.  It’s a great tool.

Lastly, the October rebalance included a few changes to the investment models.  If you’d like to get detailed information about those changes, click here for a link to the update available on my website. 


Rob Harsha, CFP®, MS


1 https://www.conference-board.org/topics/recession/US-recession-probabilities-reach-96-percent

2 https://www.moneymetals.com/

3 http://www.sca.isr.umich.edu/files/tbmics.pdf

4 http://www.bairdfinancialadvisor.com/prioletti_murphy/mediahandler/media...

5 https://cdn.janushenderson.com/webdocs/Flyer_TakingtheLongView_2022_02.pdf

6 The Business Cycle Approach to Asset Allocation, Fidelity Investments.

7 “Something’s Got to Break”, Manning and Napier, 3rd Quarter 2022 Market Update.