Describing the Perfect Day

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• Paradigm Shift

• Financial Tool

• Here’s How I Can Help

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“For the past 33 years, I have looked in the mirror every morning and asked myself: 'If today were the last day of my life, would I want to do what I am about to do today?' And whenever the answer has been 'No' for too many days in a row, I know I need to change something.”

-Steve Jobs

MAJOR ANNOUNCEMENT

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NEWS
What Happened Last Week

• US unemployment claims came in slightly better than expected at 223,000 versus 224,000.

• February’s existing home sales rose to 4.26 million, well ahead of the expected 3.95 million.

• The Philadelphia Fed business survey fell but came in better than expectations.

• Consumer sentiment continued to fall for the third consecutive month, down 22% from December 2024.

• Industrial output came in well above expectations in the US for February and across Europe for January.

• Year-ahead and longer-term inflation expectations both rose significantly among US consumers, the largest month-over-month increase since 1993.

• US Global PMI (Purchasing Managers Index) fell from 52.7 to 51.6 in February, indicating the slowest pace of expansion in the US private sector since April 2024. Both manufacturing and service sectors were above 50, indicating continued growth is likely.

How I See It

The biggest driver of this recent market correction has been the inability for investors to confidently predict future earnings potential of publicly traded companies due mainly to tariff concerns.

Fundamentally, the economic data isn’t spectacular. It’s showing signs of slowdown. But it’s still showing likelihood of continued growth.

We’re still a few weeks away before recent downward pressure becomes potentially more serious.

Remember Oct-Dec 2018? A correction spurred largely by trade war concerns with China caused a pattern to develop which looks very similar to the one we see today. But it turned around in less than three months.

What could turn this into a bear market? Unemployment and inflation both pick back up significantly. But as of now, the Federal Reserve’s econometric data shows that long, entrenched expectations of inflation still remain at healthy levels of slowing as the years go by.

Healthy long-term expectations are important for how inflation actually plays out in real time, and that’s a good sign.

All in all, there don’t appear to be strong signs of a deep upcoming recession. While one could occur in the months ahead, a repeat of something like 2008 at this time is highly unlikely.

Momentum still favors an up-trending market, both according to daily moving averages as well as the monthly RSI (Relative Strength Indicator). But daily volatility remains likely to be higher than usual in the days ahead.

The market really needed this slow down. I would be concerned if this had not happened. The market can still end this year positive without being inflated, but it needed this correction to help keep it in check.

We’ll stay tuned over the next few weeks to determine whether it appears the trend is shifting. At this time, however, it remains a correction that is likely to be over within a few months.

PARADIGM SHIFT
Describing the Perfect Day

For years, I used to attempt to envision what a perfect day would look like to me.

I found it not to be quite as easy as it sounds. I’m curious if you have the same experience.

If money were no object, how would you structure your day? What would take priority?

For example:

Quality time with family/friends

Giving

Volunteering

Exercising

Playing sports

Reading

Writing

Traveling

Sleeping

Starting a hobby

Starting a business

Practicing introspection / spiritual life

Working on your own terms

In the midst of life’s responsibilities, we tend to develop patterns of habit and thinking which work to get us through the next day with as little friction as possible.

And the longer we engage in those habits, the more they feel like just a part of “who we are,” unable to change in any meaningful way.

That’s why I believe so strongly in actively working toward a major life change every 3-5 years.

We as humans need and want predictability. But that doesn’t mean we don’t crave the occasional risk and life overhaul (so long as it’s in a positive direction)!

By making these changes to our situation, we reinforce in our psyche that we are capable of change, and our external circumstances do not define or limit who we are or what we are capable of.

This confidence compounds over time, sort of like investment returns, and causes us to see further. We become more willing to look beyond what we formerly thought to be the boundary.

How does that relate to our perfect day?

When we step outside our normal circumstances, we can see more clearly what we ACTUALLY gravitate toward when we have the freedom to do so. And this helps us steer the course correctly toward the ultimate object of our desire.

Saving up for a gap year, where one takes a full year off work to simply do whatever they’ve always wanted to do, is one of the most powerful things I believe a person can do. And it doesn’t have to be a year. It could be half a year, or whatever gives enough time to truly free one’s mind to think outside the box.

What I think we will find is that our minds clear up enough to show us the energy-wave-like nature of life. We want oscillating patterns of everything: work and play, giving and receiving, self-indulgence and self-sacrifice.

What we don’t want is a fractional life sacrificed upon the altar of a cause which we don’t truly believe in. We don’t want to sell our birthright for a bowl of soup.

In the end, truly defining what our perfect day looks like can help us manage priorities that set us on course to arrive at this place of total wealth. And by this personal compass, we will continue to see yet further as we summit each successive mountaintop.

FINANCIAL TOOL
Market Correction

A market correction is defined by a drop of between 10% and 20% from the most recent high point.

While these don’t happen every year, we don’t often see two years pass without experiencing this kind of drop.

It’s important to recognize that 10%+ drops in the market are usually just a correction. But they always feel far more important than that because of the convincing logic the media conveys for why things will fall further.

Of course, some do turn into bear markets.

But here’s why it’s important to know the difference.

Since 1987, the average correction has taken about 155 days to find its trough and turn around.

The average bear market, on the other hand, has tended to last about twice as long, approaching 10 months, before reversing course.

It’s important to remember that average doesn’t mean normal. Corrections and bear markets can last significantly longer or shorter than the average in real time. But averages are useful when thinking long-term.

For short- and intermediate-term investors (think 1-10 year time horizon) bear markets matter more than for long-term investors.

Because bull markets tend to be far longer in duration and greater in magnitude, long-term investors often face the bigger risk of missing out on the recovery than of riding through the remaining downside.

But for those with shorter term goals, such as what I teach in the courses on budgeting and investing, bear markets can be a greater risk to reaching these goals on time.

When a bear market is identified in its early stages (not usually before), the magnitude of impact can potentially be lessened through the use of a variety of methods such as:

1.) Option collar

2.) Protective put options (though these become more expensive with higher volatility)

3.) Buffered ETFs

4.) Greater bond exposure

5.) For the stock allocation, an overweight toward large-cap, defensive value stocks (e.g. consumer staples, healthcare, utilities)

Each individual’s situation will differ based on their personal goals, time horizon and aversion to risk. But at the end of the day, corrections are a normal part of any bull market, and betting on them turning into bear markets is usually betting against the odds.

HERE’S HOW I CAN HELP
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Daniel Lancaster, CFA

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