The Season of Sideways

Professional Asset Management

The Flyover:

  • Recent economic data can be seen as positive or negative, depending on which side of the debate you’re on.
  • The odds of stocks moving sideways for many more months are high.
  • After this lengthy period of consolidation, upward trends are likely to develop.
  • Today I’ll explore these thoughts with the help of a music icon…

I’m a product of the University of Florida.  While we Gators have plenty of prominent alumni, we take special pride in one of Gainesville’s treasured sons: music legend Tom Petty. 

As I look out on the horizons of the world’s financial markets, a few of Petty’s famous songs rattle around my brain.  Let me explain.

One of his biggest hits is a song called “The Waiting”.  Even people who aren’t fans probably know the refrain:  The waiting is the hardest part.

To me, this is the current state of affairs in the world of finance. 

It’s a lot of ‘wait and see’ in terms of the outcome of the Federal Reserve’s actions.  Will their series of rate hikes have the desired effects of bringing inflation under control?  Will their actions tip the globe into recession?  What will that mean for financial markets?  We truly do have to wait and see. 

The markets have already settled into this waiting mode.  I heard a pundit on CNBC last week lamenting the sideways grinding nature of the markets recently.  As I listened, I thought to myself, ‘this person better get used to it’.  I happen to believe the markets will stay rangebound for quite some time.  This could be the story of the entire year of 2023.

Instead of resembling other Petty hits like “Breakdown” or “Free Fallin’”, the good news is I believe the weight of evidence supports that when this grinding is over, the markets will breakout to the upside.  The reality is that the base for financial stability is still being built.  The foundation for future growth isn’t yet secure.  Think of it like wet cement that’s been poured to create a sidewalk.  It’s just not dry yet, but the process is underway.

The economic data of recent months continues to confound those expecting a calamity since it consistently shows a stable jobs market and a relatively healthy consumer.  But it’s only fair to concede that this same data leaves the optimists holding an empty bag of hope as well.  Several recent reports show lackluster strength overall yet provide ample evidence that the Fed needs to continue raising interest rates to keep bringing inflation gradually down to their desired level.  It adds up to a mixed bag of data.  Uncertain data isn’t fuel for a stock market that isn’t exactly cheap to begin with. 

Strong cases can be made for why stocks could be both much lower and much higher.  Depending on someone’s perspective, the same data can be interpreted many ways.  These tug-of-wars tend to end in a tie; meaning the markets have a lot of sudden rallies and dips that are counteracted by the buying or selling desires of the other side.  The end result is typically a lot of activity, but no new trend in either direction.  The danger is that the rallies can be enticing, and the dips can be frightening.  If they aren’t taken in stride, short bouts of market volatility can have adverse longer-term effects on a portfolio. 

Market fluctuations always cause emotions to run high, and this is exacerbated by the intentional hyperbole of the press.  If investors have learned anything in the high-speed internet era, it’s that opinions are developed much faster than facts are understood.  Couple this phenomenon with non-stop financial and political outlets exaggerating things and it’s a recipe for investment disaster.  

At times like these, when markets are gyrating but essentially trendless and economic data shows a slow creep in the right direction, Petty’s words are spot on: the waiting is the hardest part, but history clearly shows it’s worthwhile. 

Another Tom Petty hit is sung (shouted, really) by nearly 90,000 Gator fans in The Swamp between the 3rd and 4th quarters of every home football game.  The stadium PA blares the music and the Gator faithful belt out a few verses of “I Won’t Back Down”. Here again Petty’s words are worth framing in an investment context.

For the sake of simplicity and time, let’s distill this sentiment to the equivalent of “I won’t stop doing the right thing”.

The right thing is different for each of us, of course, and it largely varies with our stage of life.  People still working and accumulating assets have a different ‘right’ course of action than someone in retirement and in the withdrawal phase of their portfolio.  Likewise, people with ample savings in the bank will have a different set of ‘right’ priorities than someone that might need to replenish their reserves after a large expense, etc.  Regardless of our individual circumstance, the point here is universal, nevertheless.  Investing success – and success in much of life – boils down to one of my favorite phrases:  do the right thing… long enough.

So as it pertains to everyone in their own situation, staying the course throughout the doldrums is sound advice.  Remember we’re talking about a waiting phase and not the way things will be forever.  Of course, if your own personal underlying circumstances have changed, your portfolio should likely change, too.  If you’re situation is essentially the same as it was a year ago, there’s probably no reason to make changes to your investment plan during this season.  Instead, stay patient and know the days of genuine progress are coming again even though they aren’t immediately ahead.

If you’re in the accumulation phase, by all means, keep at it.  You want to accumulate as many assets as possible before they appreciate.  So sideways action like this is an ally.

If you’re in the withdrawal phase, be diligent but not alarmed.  Unless your withdrawal rates are unrealistically high, this season shouldn’t have any permanent impact on your portfolio’s longevity.  Decades of history isn’t being unwritten here.  The longer-term growth assumptions that were probably used to establish your withdrawal plans aren’t in jeopardy, in my view.  This is a typical plateau between rising phases that your withdrawal rate likely took into consideration and can endure.

I also see how two more hits from Petty’s catalogue apply to the markets.  These are timeless truths but are especially worth highlighting during these current market conditions.  I’m referring to “Even the Losers” and “You Got Lucky”. 

As you’ve likely guessed, these are references to market timing theories.  “You Got Lucky” speaks for itself and for those that aren’t familiar, “Even the Losers” centers on the reality that even the losers get lucky sometime.  And yes, I’m referring to market timing strategies in this context as losers because over time that’s exactly what they’ve proven to be.

In short, this is not a market that lends itself to short term trading. It seems like every day I hear the phrase “this is a trader’s market”. Upon further inspection, these are comments most commonly made by brokerage firm executives or self-proclaimed gurus with something to sell. I understand just about everyone has their racetrack story about the trade they nailed. That’s fine. I can give you a few of my own.  And there’s no harm at all with the occasional speculation with money that can afford to be lost. But these are hardly ever complete accountings of events.  This is where the Vegas correlation comes to the stock market.  Winning temporarily is exhilarating and most people have enjoyed a streak or two that give them fond memories.  Leaving before giving it all back to the house, however, is a more uncommon story.

The whipsawing nature of this market, made exponentially more challenging in the face of algorithms and after-hours trading, can be destructive.  History reveals reality.  Gains from short term trading and market timing strategies are almost always akin to a fireworks display in that they are both exciting and temporary.  So here again I think it pays to keep Tom Petty’s southern wisdom in mind.  You could get lucky and time the market’s recovery right.  But you probably won’t. Instead, you’re more likely going to chase the market higher as it recovers for the patient and heaps pain on the shortsighted.  It’s vital to remember that when a market finally exhausts the pessimists, it rallies quickly and relentlessly.  Market timing can prove lucky from time to time; but it has a much better reputation of creating losers.  

I could have all sorts of fun tying other Petty songs into market observations, but let’s get to the finale instead.

Consider the following information, posted by Bloomberg on 1/31/23:

Based on the S&P 500 Index returns flowing the inflation peaks in February 1970, December 1974, March 1980, December 1990, and July 2008.  On average, the index had a cumulative return of 17% one-year after the peak, 28% two years after, and 46% three years after. 

If indeed inflation has peaked for this cycle, which is the currently widely accepted truth, then staying patient with the stock market has a proven history of being a good idea. 

The Takeaways:

  • The waiting game is on.  Don’t expect much from asset markets (stocks, bond, real estate, etc.) for the next several months. However, do expect them to move up and out of these sideways phases for the years ahead.
  • For investors, waiting has a long history of paying off.  The adage ‘time in the markets is more profitable than timing the markets’ has been proven again and again.  I don’t expect this cycle to be different. 
  • Expect ongoing volatility to leave the market without a true trend for a while longer.  At the same time, expect the media (specifically the talking heads of finance and politics) to do their best to craft a convincing narrative of doomsday bearishness and pollyanna bullishness. 
  • Expect future economic data to continue sending conflicting signals.  Evidence can be construed to support the idea of a soft landing in the economy, but we still await the lagged effects of several interest rate hikes.  Most economists believe it takes at least 9 months for rate hikes to filter through the economy and one year ago the Fed Funds Rate was 0.00%. 
  • Given this, I find it hard to believe the sugar sweet story that the economy and financial markets can do great things right away. I do believe the markets have yet again done the work of pricing future realities into current prices.  So it’s also hard to believe the horror stories of this waiting phase becoming a protracted negative phase.     


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Investing in securities underlying in currencies other than the U.S. dollar involves certain considerations comprising both risk and opportunity not typically associated with investing in U.S. securities.  The security may be affected either favorably or unfavorably by fluctuation in the relative rates of exchange between currencies, by exchange control regulations, or by indigenous economic and political developments. As with any investment, there is no guarantee against potential loss.  Investments in securities and insurance products are:


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