Maybe The Best Path Is Through
- Scott Poore
- 1 hour ago
- 7 min read
There's a "wall of worry" mounting once again among investors that has some merit, but also could turn out to be noise in the end. Regardless, the usual path for most investors is to maintain exposure to markets that is consistent with long-term risk
tolerance and to see investment plans through. We gather inspiration for the second consecutive week with another set of movies starring Keanu Reeves. This week's musings are inspired by the film series "John Wick." Here is some trivia about the films:
The original "John Wick" film in the series had moderate success. It was filmed on a budget of $20 million and earned more than $86 million at the box office. The follow-up film "John Wick: Chapter 2" was given a higher budget of $40 million and made more than $174 million at the box office. All total, the four films in the series made more than $1 billion.
Reeves performed at least 90% of the stunts in the films himself, with the exception of getting hit by a car or falling down a flight of stairs.
The 2nd movie in the franchise was the first time that Reeves and Laurence Fishburne had worked together since "The Matrix" films. Fishburne mentioned to Reeves that he was a fan of the original movie and Reeves got him a script. Fishburne replied to Reeves that same day simply saying, "I'm in. Fish."
The tattoo on John Wick's back reads "Fortis Fortuna Adiuvat" which in Latin literally means, "Fortune Favors the Strong." This has been popularly mistranslated as "Fortune Favors the Brave."
The studio had originally intended for the series to be a trilogy, but the 3rd movie didn't complete the story arc so the 4th film was released in 2023.
The mirror scene in the 2nd film was an acknowledged nod to Bruce Lee and his film "Enter the Dragon" (1973) in which he engages enemies in a room full of mirrors.
Here's what we've seen so far this week...
The Boogeyman. For most of the characters in the "John Wick" movies, the mere mention of his name is associated with The Boogeyman, or "Baba Yaga" as it is termed in Slavic folklore. However, in the first film, John's primary nemesis explains that John isn't really the Boogeyman, but the one who is sent to kill the Boogeyman. For investors,
the "boogeyman" in the "wall of worry" could be an event that tests the current "risk-on" sentiment. In June and July, investors got a preview of such a test when AI and AI-related themes took a hit over the two-month period. The advancement of new generation chips and more efficient models caused doubts about current profits and the need for data center buildout, sparking a "risk-off" attitude toward AI. The Silicon Data LLM Token Expenditure Index dropped by more than 30% in June & July. AI revenue growth is somewhat dependent upon "tokenization" (read here to learn more). This bled over into momentum names related to AI. Mag 7, Technology, Semiconductors, Nuclear, and Rare Earth Minerals saw more than double-digit losses in the June-July period. As we mentioned last week, the "circular financing" that has been going on in the AI space could lead to more downside risk should another event bring into doubt the growth potential of AI.1
The concentration of the S&P 500 Index in just the top 10 names is something we have covered for the past few weeks. However, other patterns are starting to emerge that are also reminiscent of the Dot.com bubble. The correlation between U.S. stocks that are high-risk versus low-risk has reached a record low of -34%. The previous low of 7%
was set prior to the peak of equities in 2000. Historically speaking, the correlation between high and low risk stocks has averaged approximately 80%, according to the graphic. If true, that would mean that there is a rotation happening away from high-risk toward low-risk stocks. On top of that, we are approaching mid-term election season where markets tend to get choppy, historically. The S&P 500 Index is positive so far for the month of August. When July is negative and August is positive heading into Mid-terms, September is down, while October and November are higher, on average.2 However, if August were to end negative, the returns over the next three months have been worse than when August is positive. When July and August are negative, September has averaged -5%, with a recovery in October and flat November, historically.3 In other words, investors could expect more volatility heading into year-end to go along with the volatility we've already experienced in 2026.
"Baba Yaga" To The Rescue. First, they killed his dog, then they stole his car. When a man like John Wick is pushed to his limit, watch out! One character described John by stating the following: "John is a man of focus, commitment, sheer will… something you know very little about. I once saw him kill three men in a bar… with a pencil. With a @$&#%
pencil!" Such is the resolve of the government in trying to bring interest rates down. Earlier this week the market seemed to respond poorly to the Treasury's announcement of a buyback of treasury bonds of at least $4 billion.4 Some interpreted the move as a "liquidity support" event. However, this is more likely a repeat of the 2011-2012 "Operation Twist" that involved the Fed purchasing long-term bonds by issuing short-term bonds.5 The end result 9 months after Operation Twist commenced, as evidenced in the graph above, was that the long-end of the Treasury Curve moved lower while the short end of the curve just slightly moved higher. If such a result could be accomplished in "Operation Twist 2.0," it could prove supportive of economic activity and give the Treasury room to reinvest a portion of its balance sheet that is maturing in lower interest rate treasuries.
The FOMC minutes from the prior Fed meeting were released earlier this week and were largely interpreted as "hawkish." It is important to note, however, that the minutes are more than 1-month old and much economic data has been released since then. That being said, the minutes stated, "Many participants assessed that policy
tightening would likely be necessary if inflation did not decline."6 Well, last week's CPI & PPI reports showed continued decline in the year-over-year data.1 And yet, in contrary form, the minutes also stated, "Most participants anticipated that inflation would step down over the rest of the year as the effects of tariffs and earlier energy price increases wane."6 If that is indeed the case, it becomes more difficult to understand how the minutes could be taken as "hawkish." In fact, the implied futures on Fed Funds continues to show at least a 61% probability of no rate change at the next Fed meeting in September.7
Applebee's or Ruth Chris? The price on John Wick's head reaches an amount of $7 million in the 2nd movie, to which Laurence Fishburne's character responds, "It's Christmas. We're going to Applebee's after this." Investors are facing this quandary as appreciated markets have led to withdrawals from elevated investment accounts.1
Perhaps some perspective on market movement could guide investors on spending and long-term investing habits. There have been approximately 1,400 new highs on the S&P 500 since 1950.8 That means that 7% of all trading days in that time period equities have traded at new highs.8 However, that also means that equities spend a lot of time in a state of drawdown. If 7% of all trading days have been new highs, at least 93% of the time the market would have traded below all-time highs.8 Investors should keep in mind that markets do not go straight up - there are peaks and valleys along the way in an upward trend.
Belt-tightening behavior, so to speak, often lacks intuition. Instead of tightening spending during times of economic pullbacks, it could be argued that tightening would be more appropriate when economic times are booming. Regardless, abandoning
equities completely over long periods of time is not the best way to keep up with inflation. Since 1970, the value of the dollar has eroded due to the effects of inflation. If left in cash, the return on $10,000 would be negative, on an inflation-adjusted basis. However, $10,000 invested in the S&P 500 Index would have grown, despite the effects of inflation. A better way to maintain spending power over time relative to just keeping cash is to stay invested with an appropriate risk tolerance and spending plan. As returns on certain stocks and indices seem enticing, investors who engage in financial planning and remain diversified may find the ride over the coming months more tolerable than being concentrated in just a few investments.
Click here to watch the entertaining scene where Keanu and Laurence meet on screen again.....
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Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.
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