FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
July 26, 2022

IN THIS ISSUE:

1. A Terrible 6 Months For The Financial Markets

2. Stocks Officially In A Bear Market – Now What?

3. Treasury Bonds Incur 2nd Worst 6-Month Losses

4. 60/40 Portfolio Got Hammered This Year

5. Time To Seriously Consider Alternative Investments

6. How ALPHA Delivered Such Strong Results This Year

Overview – A Terrible 6 Months For The Financial Markets

The first six months of 2022 were a nightmare for the financial markets. Both stocks and bonds declined significantly at the same time. This doesn’t happen very often, especially not for two consecutive quarters. In fact, you could argue we just lived through one of the worst six months ever for stocks and bonds.

And you wouldn’t be exaggerating, as we’ll see below. That’s the bad news. But I also have some very good news. In the second half of today’s letter, I’m going to talk about an investment which performed very strongly in the first half of this year. Let’s get started.

Stocks Officially In A Bear Market

Stocks as measured by the S&P 500 Index and others are now officially in a bear market, with a bear market defined as a 20% or more close below the most recent peak. As of the end of June, the return for the S&P 500 Index was -19.96%. However, on several days in June the Index closed below a loss of 20%. And it’s been a pretty steep decline. The chart below shows the rolling six-month “time windows” for the S&P 500 Index.

In fact, the S&P 500 return for the first six months of 2022 ranks in the worst 3% of all six month returns since 1926. The only 6-month periods worse than what we just went through were during the 2008 financial crisis, the 1970s bear market, World War II, the 1937 crash and the Great Depression.

If you’re a buy-and-hold investor, you took that entire loss on the chin. A lot of people bailed out recently. Several mutual fund companies reported very large redemptions from equity funds in May. June numbers are expected to be very large as well.

Treasury Bonds Incur 2nd Worst 6-Month Losses

Making matters worse, bonds had one of their worst six-month periods as well. The 10-year US Treasury bond lost 11.34% in the six months ended June. That was the second worst six-month loss on record, exceeded only by the 1980 bear market.

As you can see in the chart above, the yield on the 10-year Treasury Note more than doubled in the six months ended June 30, rising well above 3%. The last time we saw the 10-year yield above 3% was in 2010, more than a decade ago.

Yields have come down modestly since the end of June, but this is still the worst bear market in bonds in years. It remains to be seen if bond yields will continue to fall, or if this bearish trend will continue as the Fed hikes short-term interest rates several more times this year.

60/40 Portfolio Got Hammered This Year

It is rare for stocks and bonds to decline in back-to-back quarters. But it happens. So, a traditional 60/40 stock/bond portfolio offered investors no cover this year. The six-month returns for a 60/40 portfolio in 2022 were in the bottom 2% of rolling returns going back to 1926. This year, that combination would have produced losses in excess of 16%. Ouch!

This year was just the fourth time over the last 100 years when stocks and bonds were down two consecutive quarters at the same time. Investors who diversify into stocks and bonds hope they both don’t go down at the same time, but it happens once in a while as you can see below.

The question is, will stocks and bonds decline together again for a third consecutive quarter? No one knows, of course, but I could find only one occurrence where it happened, in the last nine months of 1931. So, it’s really rare. Fortunately, a decline of four quarters in a row has never happened.

The only good news in all this is you can now earn a little over 3% in long-term Treasuries, as opposed to around 1% just 18 months ago. Yet that’s still not much given the level of risk these markets have just demonstrated.

Time To Seriously Consider Alternative Investments

I do not believe it is time to abandon a 60/40 strategy altogether, just because stocks and bonds have declined in tandem this year. However, I do strongly believe it’s time to seriously consider some alternative investments for a meaningful portion of your portfolio.

Institutions have been shifting to alternative investments in a big way in recent years as I’ve discussed in these pages and in our marketing materials. There is no reason you as an individual can’t invest like an institution. There are some very successful alternative investment strategies available to individual investors. Most investors just don’t know where to find them.

That’s where we at Halbert Wealth Management (HWM) come in. We’ve been finding, evaluating and promoting alternative investments for 25 years. We have several hundred clients all across the country, and we manage over $150 million in client assets.

We offer a variety of alternative investments I could present to you today, but at the risk of sounding like a broken record, I’ll focus once again on our ALPHA ADVANTAGE STRATEGY, which has eight years of actual performance.

I all but begged my readers to invest in ALPHA ADVANTAGE in these pages in late 2020 and early 2021. I wish more readers had invested because ALPHA delivered double digit returns in 2020, 2021 and it’s up strongly already this year -- when just about everything else is down. As always, past performance is not necessarily indicative of future results.

Take a look at our FACT SHEET to see the actual returns since inception in 2014. I emphasize “actual returns” because the track record in our FACT SHEET is real returns in real accounts net of fees, not hypothetical.

When I decided to develop the ALPHA ADVANTAGE STATEGY, I asked my analysts to study the performance of all the professional equity strategies in our database and find the combination which had performed the best in the past.

When they did, I decided to put the top performing group into one account so investors could get the benefit of good diversification in a single account. So, the ALPHA ADVANTAGE STRATEGY has the benefit of multiple proprietary trading signals in a single account. It was one of the best decisions I ever made.

Best of all, the performance of the combination we selected for ALPHA has a low correlation to the stock market. That means ALPHA doesn’t necessarily go up and down when the stock market does. Fortunately, that has been the case this year! ALPHA ADVANTAGE has delivered very strong performance this year when just about everything else has been down. Of course, past performance is not necessarily indicative of future results.

How ALPHA Delivered Such Strong Results This Year

The proprietary trading signals in ALPHA can be either long or short in the stock market. With all the ups and downs we’ve seen this year, the markets have provided an ideal environment for a strategy which can go long or short.

Since the stock market has trended lower this year, there have been lots of opportunities on the short side at a time when most money managers could only watch losses mount in their buy-and-hold strategies, or at best, move to money market which pays next to nothing.

I truly believe this ability to invest long or short is the most attractive feature to ALPHA ADVANTAGE, along with its diversification with the multiple strategies we employ.

You owe it to yourself to look at ALPHA’s FACT SHEET to see these impressive, actual returns, especially this year when the stock market was down 20% or more.

For all the reasons I’ve discussed above, I’ve been trying to get my readers who have never invested with us to invest in ALPHA ADVANTAGE for several years now. Those who have chosen not to have left a lot of money on the table these last two years! And it’s not too late to get started, in my opinion.

Worst of all, you’ve either lost a good bit of money this year or made next to nothing if you moved to cash. Yet if you had an allocation to ALPHA ADVANTAGE, you’d be up strongly in that part of your portfolio. Past performance is no guarantee of future results.

Again, ALPHA has done so well this year in part because of its ability to go short in falling markets. If this year’s stellar performance in the first six months – when virtually everything else was down – doesn’t convince you to invest, then I guess nothing will.

But if you’re ready to make a change, call us at 800-348-3601. It’s easy to get started.

ALPHA ADVANTAGE WEBINAR: We do have a webinar with the Trading Manager for ALPHA on our website at www.HalbertWealth.com. Just click on that link and it will take you directly to the webinar. I think you’ll find it interesting and informative. 

Finally, no matter what you decide to do about ALPHA, thanks for reading me all these years! 

Closing Note: Reminder, the Fed Open Market Committee meets today and tomorrow at which time they are expected to raise the Fed Funds Rate by another 0.75%. While this increase is widely expected, it may be negative for the financial markets. The Fed’s policy statement will be released Wednesday at 2:00 followed by Chairman Powell’s press conference at 2:30.

Best personal regards,

Gary D. Halbert

Gary's Between the Lines:
Americans’ Inflation Expectations Hit Record High In June

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.