Bruised From Monday's Fall? Let's See Where We Stand in the Big Picture

As we collectively nurse our wounds from Monday's fall -- and from the four-day Dow tumble -- I thought it would be helpful to, as some on social media have been saying, zoom out. Let's put the past week and 2022 so far into perspective. For this exercise, I'm going to pull in some figures and charts from a study on the Down Jones Industrial Average I built a while ago and continue to update. The study tracks daily returns of the index from January 1, 1901, to June 13, 2022, in this case. When we take a look at year-to-date returns to Monday for each year of the study, we find that 2022 so far ranks as the sixth worst start for the Dow in the past 122 years. Looking at the 44 negative yearly starts to Monday since 1901, a full 28 of them recovered by year-end and of those, 13 ended the year at least 10% higher from June 13. That's the good news. The not-as-good news is that many of those outperforming years were also years of relatively high volatility like the early 1930s, 1970, 2010, and 2020. I say not-so-good news because so far, 2022 has not exhibited the kind of volatility that can produce snapback rallies that could get us back in the black by year's end. Don't get me wrong, 2022 has been volatile and is the 22nd most volatile year since 1901, even just tracking to June 13, but as you can see from the stacked chart below it has not been producing the kind of big moves we have seen in the past, recent or long term. What do 2020 and 2008 have in common? They both have multiple dates in the top 20 biggest single-day gain and loss tables. So far, 2022 tops out at 248 (May 18). Mind you, that is out of 30,509 days, but, still, not topping the charts. Source: All You Can ETF Another factor that plays into my view is that inasmuch as equity markets do always recover, this drawdown is not over. Also, it's going to take some time to recover from -- measured in quarters, if not years. Source: All You Can ETF While I don't see a compelling volatility profile in these markets to whipsaw us out of this, I think that economic realities that the Fed has been glossing over for the past few years are being laid bare. Essentially, the can has been kicked far enough down the road that we're quickly running out of road. Yes, the Fed can always decide to bail out the bailout, but at this point, throwing even more money at these problems risks creating problems that would take years, if not decades to recover from. Those of us who were investing 14 and 20 years ago may remember the endless speculation as to whether the economic recovery would be in the shape of a V, U or L. Again, my take is that once we do bottom it will take us some time to exit that trough, so L gets my vote this time around. What This Means for ETF Investors While there are a number of products in the marketplace that will allow investors to play Russian Roulette with either a single chambered round or perhaps two or three -- regular readers will know that I tend to run on the conservative side with my core investments at least. With that in mind, if you feel you must be in the market, getting classically defensive seems prudent. I'm thinking about assets like gold and companies like utilities, that kind of classic. Another tack might be to explore some of the Innovator Defined Outcome products which can provide broad market exposure and seek to provide downside protection of 9%, 15%, or, after a 5% loss, protects investors for the next 30% of drawdown. But if you chose to navigate the next few quarters and the next shift out of the coming trough, the good news is that there are any number of ETF products and strategies that can help you execute your plans.

Bruised From Monday's Fall? Let's See Where We Stand in the Big Picture

I'm putting this past week -- and all of 2022 so far -- into perspective. Then we'll see what types of ETFs work best in this market.

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