Man, what a month! March came in like a bear, and went out like a bear. It was one of the most astounding and frustrating markets I have ever dealt with in 27 years as a financial advisor/investment officer. One of the more amazing things, from a markets standpoint, is how quickly everything moved. It is my opinion that swings like we have been through may have taken many months, if not longer, to slog through in the past. But with computerized trading, things that used to take hours now take seconds, so the timeline of market events gets compressed. So, while we are setting records for price movement and volatility, I think some of that is due to rapid trading conditions. In many ways, from a market perspective, it is likely better to get these fluctuations over with in a hurry, rather than having the slow drip of selling to last, and last, and last.
Having said all that, I hope that you, your family, loved ones, and friends are staying healthy. Day-to-day life feels like it has changed a lot recently, but in the end, the important things are the same as they have always been.
I know from calls and emails that many of our clients have been nervous about their investments, and I can’t blame anyone for that. Please note what I am about to write, though, as it became glaringly obvious over the past month: make a Signature Life Plan with us if you have not already. Our plans are designed to account for many different market scenarios, running 1,000 different permutations for each plan. So while the plan never saw COVID-19 coming, it did already take into account many terrible results (the Crash of 1987, the Tech Bubble Burst, the Asian Currency Crisis, SARS, MERS, the Great Recession, etc.). As market gyrations were whipping stock averages all over the place, it can be a great comfort to review your Confidence Number and know that your life plans may not need to be altered due to financial markets. There’s nothing we can do about Social Distancing, though!
Our models did not predict the dive that markets took in March, but nobody’s did. Even Warren Buffett’s stock portfolio took a beating https://www.marketwatch.com/story/getting-crushed-in-this-market-one-look-at-warren-buffetts-portfolio-and-you-might-feel-a-lot-better-about-yours-2020-03-25?reflink=mw_share_email We did warn in January and February that the market was overheated, but our model is based on the economy and finances, not epidemiology, and before the virus outbreak, the economy was doing well. However, the economy will most likely (I hate to say definitely, but I’m pretty sure) slow down due to all of the measures we are taking to slow the virus’s spread. Corporate earnings, once projected to grow at a healthy rate in 2020, are now projected to shrink. The economy, as measured by Gross Domestic Product, should decline. In my opinion, this has been factored into current stock prices, and then some. I believe that stocks are now undervalued, even compared to this year’s reduced expectations.
Often, though, after a rally like stock markets saw in late March, there is a pullback. You may have heard experts predict a “retest of the lows,” meaning that stock market averages may go back down to where they were in the bleakest of moments in March. Admittedly, that is the playbook for situations like we’re in. I’m not so sure we’ll get all the way back down, but if we pulled halfway back on the S&P 500, I wouldn’t be surprised, and neither should you. Use this as an opportunity to revisit your risk tolerance, and, please, create or update your Signature Life Plan! Make your investments more about your index-the Confidence Number-and less about the S&P 500.
As always, these opinions are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Individuals cannot invest directly in any index. Index performance does not include transaction costs or other fees, which will affect investment performance. Individual investor results will vary. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.