Burt White: ‘Volatility Is a Fee Worth Paying’

Although market volatility continues, there is likely some upside down the road for investors who are patient and stick with their plans, according to Carson Group’s Burt White.

White, LPL Financial’s former chief investment officer, joined Carson Group in April as its chief strategy officer and a managing partner.

Via email, we asked White a few questions about the state of the current market and where he thinks it’s headed.

1. What’s your view on where volatility is headed in Q3 and Q4 and why? 

Burt White: Volatility likely will remain high due to the recession we are already in. No, we are certainly not in an economic recession like some think, but rather a confidence recession, where the market and investors feel a lack of clarity on the course of the Fed’s actions and the general inability to quickly get inflationary pressures under control.

This uncertainty is weight on the markets and like a wet blanket draped over hopes for a recovery.

That said, stocks in a non-recessionary bear market have historically been very attractive entry points. In fact, if history is any guide, once a bear market begins, recoveries are often closer than we anticipate.

The last 10 times since WWII that the market crossed into bear market territory, only three times did stocks move further lower a year later and each of these were associated with a major recession — something that is not where we are today.

The other seven times, markets recovered significantly following the bear market crossover. Importantly, those three previous non-recessionary bear markets, similar to the economic conditions we are currently experiencing, all posted one-year gains over 22% and averaged 25% advances in aggregate.

While there are still many things to still unfold for the market and the economy, we do not anticipate a recession on the near-term horizon and thus view these historic trends to be the most likely paths for market conditions to follow.

2. What are the greatest risks and opportunities for investors in this environment and why?

The greatest market risk remains a policy mistake by the Fed. Being data dependent means the Fed needs to keep their head on a swivel and be prepared to swiftly battle inflationary pressures until it’s time to do a quick 180 and prop up markets for landing too hardly into recession-land.

The Fed can’t fix inflationary pressures along with their relatively weak toolbox of interest rate hikes and rhetoric. The Fed just needs to shave off some demand to buy the time needed for supply chains to recover and resolve this inflationary bout. The Fed needs to view itself as a part of the solution, not the savior. Anything otherwise and the Fed drives the economy into a recession.

For investors, the greatest risk is abandoning their plan. Emotion is ignited by pain, fear, and suddenness, which makes market volatility hard to navigate. It is easy to identify the challenges that sit right before us but the case for how things will improve is often harder and more nuanced.

History has proven that challenges faced by the market are managed, mitigated, or innovated away with a longer-term vantage. Today’s challenges are no different. The reality is that markets are built to recover, which is why remaining steadfast to a long-term mindset and following a thoughtful investment plan is the key to a solid financial future.

The old investment adage of cheap sunglasses is the story to tell in times like these. You see, now is very likely not the right time to be seeking out the market’s version of an umbrella. The storm has already come and everyone is already drenched. Plus, umbrellas are super expensive during downpours, and so are defensive names in the market.

But on the shelves, if we take a look over the horizon, are marked down, cheap sunglasses — just waiting for the break in the weather. Investors should be maintaining adherence to their long-term plan and use thunderstorms to find sunglasses on the cheap.