As Fall Falls: A Market Perspective

As Fall Falls: A Market Perspective

As fall falls and the temperatures signal a new season, we are reminded why we love this time of year in Wisconsin. We are replacing our shorts and swim trunks with flannel shirts and hooded sweatshirts. Even though most of us have been through the Midwest seasonal pattern for decades, every season feels new and different from last year or the year before. We know that it isn’t different. Leaf colors will change and eventually drop. Snow will fall and temperatures will once again have a minus in front of them. 

The investment markets tend to run in similar cyclical patterns. Albeit not as predictable as the seasons, stock and bond markets have a familiar rhythm. Investment markets peak, then fall, eventually bottoming out before rising again. While we all know this and have likely been through the cycle, it is very easy to get lost in the noise, feeling as though this time it is different

Proper perspective is one of the most essential traits of successful long-term investors. While it is sometimes difficult to deal with freezing temperatures day after day in January and February, we know that by April and May things will improve. It is harder to have a solid perspective when the investment markets fall and show no indication of recovery. The majority of stock and bond markets started 2022 sliding downhill and have continued that negative momentum through the third quarter. If the first nine months of 2022 were an “investment market winter,” we don’t have the luxury of looking at a calendar to tell us when spring will arrive. 

Market Perspective: The Last 30 Years in the S&P 500

When I begin to lose sight of the big picture, I tend to look at history as a way to get my bearings. Here is a chart of the S&P 500 annual returns for the last 30 years. 

There are two significant takeaways from this chart. First, in the last 30 years, the S&P 500 has only had five years of negative returns of more than 2%. Second, only one of these years occurred in the last 13 years. The first takeaway helps to provide context. Most investors define themselves as long-term, with a time horizon of more than 10 years. Therefore, seeing the last 30 years of returns can give us a useful long view. The second takeaway helps us to better understand the unique nature of the most recent bull market. From 2009 – 2021, there was one meaningful down year over these 13 years. Most bull markets last just under three years. While a market downturn was inevitable, predicting when it would start and the depth of the downturn is impossible. Coming off the down year in 2018, many respected economists and market professionals were predicting a difficult year for the US stock markets in 2019. As we can see from the chart, the S&P 500 index posted a total return of over 28% for 2019 and started a three-year run of double-digit positive returns. This isn’t throwing stones at the economists and market professionals who got it wrong in 2019, simply pointing out that predicting market returns or when markets will fall in any given year is incredibly difficult. 

Raising of the Fed Funds Rate and Bond Markets

Now that we have a better understanding of the recent history of the U.S. equity markets, let’s turn our attention to the fixed income or bond markets. As jarring as 2022 has been for the equity markets, it pales compared to what has transpired in the bond market, particularly due to the Fed raising interest rates. The Federal Funds Rate, which is the rate most often adjusted by the Federal Reserve, began the year at .25%. As of Oct. 3, the current Fed Funds Rate sits at 3.25% as a result of three straight .75% increases. 

The Fed is raising interest rates to combat soaring inflation. While this is necessary to help contain the current inflationary environment, it is leading to an incredibly challenging bond market. This coalescence of events has led to the worst start to a bond year since 1842. Here are three popular bond indexes to illustrate the negative 2022 performance.

The positive byproduct of the Fed aggressively raising interest rates is that we are finally in a higher-yielding bond environment. Newly issued bonds from the U.S. government and corporations are paying much more attractive interest rates than in the past 15 years. 

Perspective is easily lost in light of the turbulent market conditions. Much like the despair you feel when we receive that early March snowfall, it is helpful to keep in mind that the current stage of this cycle will run its course and the markets will grow again. This is the time to review your portfolios and investment strategy to ensure that you are well positioned for your long-term goals.


Nate Condon


Nate Condon is one of the co-founders and managing partners of Walkner Condon Financial Advisors. He is a fee-only, fiduciary financial advisor who works with clients locally in Madison and around the country.

Recency Bias and the Fed’s Interest Rate Hikes

Recency Bias and the Fed’s Interest Rate Hikes

On every vacation we go on, my kids say something to the effect of, “This is the best vacation ever!” I typically follow up that statement with the question “What about that other vacation you said was the best?” And they respond, “Oh yeah! That was my favorite too!”

Is each vacation we take truly the “best” we’ve ever been on? Are we just upping the ante and topping each trip we take with a more exciting one? Nope. So then why do they think that each vacation we take is the best ever? Recency bias.

Recency bias is a cognitive predisposition that causes people to more prominently recall and emphasize recent events compared to those that occurred further in the past. My kids claim our current vacation is the best because it’s fresh in their minds, and they remember it most clearly.

When it comes to investing, recency bias shows up in many different ways: picking a stock or fund based on a recent surge in performance, overweighting a particular asset class due to recent outperformance compared to other sectors, assuming the current bear or bull market will continue, and generally losing sight of longer-term trends in things like gas prices, interest rates, and inflation.

Look no further than the current discussion of the federal funds rate. For reference, the current federal funds rate is 3.25%. A year ago it was .25%. 

So, if you look only at the recent history of interest rates, this may seem like a large jump. However, when you take a longer view and look at historical interest rate trends, we are still far below historical averages. Even news outlets use adjectives like “aggressive” and compare the current rate to the “most recent high in summer 2019.”

When you zoom out, looking beyond this recent time of uncharacteristically low interest rates, you’ll see that even with these increases, interest rates are still at historic lows. Over the past 60 years, the average federal funds rate has been just above 4.6%. From 1977-1991 the rate didn’t drop below that average and soared as high as 20.6% in 1981. We have had below-average interest rates since 2008. And even with the most recent increase, we’re still below historical averages.

Despite the historical data, the market reacted negatively over the last week to the news that the Fed is continuing to be more hawkish on inflation, with expectations of multiple interest rate increases in the next 12 months. 

Why this is somewhat of a surprise is confounding, as an important chart should be referenced:

Is the Fed “tight”? Hardly. Historically the Fed funds rate has been over inflation, and in some cases, for years. Unless supply chains heal quickly or we see a significant recession, in my opinion, we are a long way away from pausing rate hikes if we actually want to be serious about slowing inflation.

Low interest rates are fresh in people’s minds. It’s easy to focus just on that most recent data, especially when low rates have persisted for so long. When I remind my kids of a larger vacation we took a year ago (like Florida), suddenly the weekend we just spent up north is no longer “the best vacation ever.” It just takes a little reminder to put recent events into perspective. Hopefully, being reminded of longer-term trends, and adding more data points to the interest rate conversation, will widen people’s views and help eliminate some of that recency bias.

Note: The opinions expressed are the author’s views but may not reflect those held by other advisors at Walkner Condon Financial Advisors. 


Alicia Vande Ven, M.S.

Alicia Vande Ven, M.S.

Financial Advisor

Alicia Vande Ven is a Candidate for CFP® Certification at Walkner Condon Financial Advisors, a fee-only, fiduciary financial advisor firm based in Madison, WI, that works with clients locally and around the country.


Webinar: State of the Market Halfway Through 2022

Webinar: State of the Market Halfway Through 2022

When it comes to finances and investing, 2022 has started in a rocky fashion. The lasting impacts of COVID-19 – including its continued effect on supply chain snags – and Russia’s invasion of Ukraine have had a hand in the increasing impact of inflation, as well as the rollercoaster ride of the stock markets. And regardless of whether you have an advisor or you manage your own investments, you’d be lucky to be down only a few percent year-to-date.

With an underwhelming last six months in the books, we felt it was an important time to have a transparent conversation about the state of the market. And while this is geared toward our clients, we cover lots of ground that every investor should know right now from stock performance year-to-date to treasuries and mortgages to the inverted yield curve.

Questions or Comments?

If you have any questions or would like to discuss anything from the State of the Market webinar more in-depth, please feel free to reach out to our team by tapping the button below. You can also schedule an appointment by clicking here.