The Cyclical Nature of Markets

Financial PlanningGeneral
The Cyclical Nature of Markets

The Christian’s goal when investing should be to build a lasting legacy for Kingdom use in the future. To achieve this goal, it is key to understand the cyclical nature of capital markets.  Whether the market is down or up, bear or bull, investment markets are always a topic of discussion on the news.

Each day the market fluctuates around its trend, and, in the short term, we have periods of expansion where the market rises significantly and contractions where the market goes down significantly.  Both of these trends follow the state of the overall economy. These are transitory periods because, in the long term, history tells us that the market trends upward overall.  Knowing this, as we charter through markets day-to-day seeking a long-term legacy, we must be cautious against the desire to invest for just “today” when our goal is often far into the future.  It is easy to be delayed by stormy markets or waste time searching for “hot stocks,” while our true goal is the legacy on the horizon. Understanding why and how markets are cyclical is the compass that helps the professional team at Ambassador Advisors navigate these waters and understand the importance of charting a course for our clients’ legacies instead of reacting to each shimmer on the horizon. In understanding the cyclical nature of markets, we hope to help clients avoid some of the rough waters that make achieving a lasting legacy more difficult.

Why are markets cyclical?

Markets are linked to the economy, and the economy rises and falls as we go through business cycles of expansion and contraction. When someone invests, that often means buying a stock, which is an ownership interest in a company, or a bond, which is a debt of a company or government.  When the economy is expanding, the prospects of companies are usually good and tax revenue usually strong. This leads to stock prices rising and bonds being paid.

On the other hand, in poor times, tax revenue is less and the prospects of companies are poorer, leading to fears that bonds will not be paid and companies may fare worse. Still, these trends are transitory, as we progress through the long-term business cycle. Looking only at the near-term, we miss that the economy has grown over the long-term and the market appreciated accordingly.

Staying the Course in a Tough Market

Knowing that the markets are cyclical, it becomes important to stay the course in your investing through both bear and bull markets. While no one likes to see the value of an account go down, exiting the market after a cyclical loss can leave the investor stranded on an island short of their desired legacy. The days when markets are down are the key moments to continue to fund the future legacy, so that even more funds can be a part of the rising tides when the market returns to growth.

This may be easier to say than to do, but that is all the more reason it is important to work with a trusted advisor from the professional team at Ambassador Advisors. Our team is here to guide clients through good times and, even more so, through the challenges.

Facing the Challenges of a Good Market

When the market is expanding, it can be difficult to stick to a planned investment strategy. That said, understanding that we should be seeking after lasting legacies reveals how chasing short-term gains could harm reaching those dreams.

The appearance of a bear or bull market has an impact on portfolio positioning, and that view is typically driven by the forecasted economic outlook. Various federal agencies and other groups publish data on economic indicators, and these are key to investors trying to understand the state of the economy. Some of those factors include:

  • the Consumer Price Index (CPI), which is a measure of inflation
  • our Gross Domestic Product (GDP), which is a measure of economic size
  • jobs and unemployment, which are measures of the labor market
  • additional metrics on everything from housing to consumer sentiment.

Active management can allow investors to make thoughtful and intentional investment decisions starting with these macroeconomic factors. Our professional team of wealth managers works to take advantage of opportunities each market cycle presents through asset type, sector, and company positioning.

An Investment Legacy

Biblically responsible investing is not about the end of the day or even the end of this year. Stewardship through biblically responsible investing is about building a lasting legacy, like spending a retirement visiting grandchildren and gifting to church and charities you love. When thinking of the market, focus on the goals beyond what happened today. Set your mind on this future legacy. It is as important to be diligent investors when the market is down or when it is up, so you can avoid pitfalls along the way. Building a legacy with the help of professional management can help you get there, regardless of the ebbs and flows of the market.

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.
This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.

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