Penta Strategies 2022 April

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Penta Strategies 2022 April

Dear friends

April has fooled us all badly and on almost every level.

The troubling uncertainty of Russia’s intensified attacks on Ukraine and the pain and suffering of so many people continued to dominate our headlines. At the same time, Covid-19 cases in China surged again, causing further disruption to global logistics in an already tense shipping and supply chain situation.

As a result, prices continued to rise, driving inflation to 8.5% in March, the highest level since the 1980s. The Federal Reserve quickly signaled that it was determined to fight inflation and that a 1% hike would be “on the table for the May meeting.” But that also pushed U.S. long-term fixed mortgage rates above 5% for the first time since 2011, nearly double the rate seen in December 2020. The question remains whether the Fed will be able to optimally hit the brakes without plunging the economy into recession.

This perfect storm of economic anxiety led to the S&P 500 posting its worst monthly decline since March 2020, even though most earning reports from major technology companies were better than expected. And as the bond market collapsed at the same time, both diversified and growth equity portfolios suffered equally significant losses. Unfortunately, gold and crypto didn’t help either, by the end of the month, everything was deep in the red: the Nasdaq closed -13.3%, the S&P 500 -8.8%, 20-year bonds -9.4%, gold -2.1%, and bitcoin -17.2%.

Our strategies were hit similarly hard: Universal -4.3%, Progressive -10.3%, and CryptoMax -20.2%.

Of course, I was also concerned about the magnitude of these monthly declines and thoroughly reviewed all available data for Penta Universal and Penta Progressive since 1960 and for Penta Cryptomax since 2011, the “beginning of time” for cryptocurrencies. As it turned out, such sharp drops, while very rare, are still within the expected “normal” range and occur about every 5-7 years. Nevertheless, I have taken further measures to even better manage risks and volatility under such exceptional circumstances without compromising performance.  Ultimately, I was able to reduce the historical probability of such events by about 1/3 in all three strategies, so hopefully these nasty surprises will occur somewhat less frequently in the future.

But what to do in the next few weeks? Sell in May and go away?

While it’s understandable to be spooked by recent events and stay away until things get better, it’s unfortunately almost impossible to time the market. Longer-term investment success requires patience and consistency, and we know from experience that it pays to stay invested. The Nasdaq has 1-2 corrections of 10-20% almost every year, and historically our strategies have been able to dodge such bullets over 90% of the time. But that’s about as good as it gets. If this is still giving you sleepless nights, respect your feelings and seek advice from a trusted financial professional. Objectively review your risk tolerance and identify an appropriate investment mix for your particular situation, rather than just temporarily exiting the market.

But there is also light on the horizon, with most major U.S. companies expected to report positive earnings growth for the fifth consecutive quarter. As a result, analysts currently have a “Buy” rating for 57% of the S&P 500 stocks – something that hasn’t been seen since 2011 either…

Stay happy, healthy and wealthy!


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