I’ve seen a lot in 27 years in the investment business, but I don’t recall anything like this. This was one of the fastest, if not THE fastest, bear market declines in history, followed by one of the fastest retracements ever. The pullback was not without reason, as earnings expectations for S&P 500 companies have fallen from roughly $170/share to roughly $130/share, a 23% decline, according to Mike Gibbs of Raymond James. Given that stock prices generally follow earnings, the S&P 500’s decline was in-line.
Raymond James has reduced its target value for the S&P 500 to about 2800, which seems optimistic to me. Unfortunately, market breadth is very narrow, meaning that the rally back is being led by a very few stocks. So, while the market-cap weighted (gives more weight to the largest stocks like Facebook, Apple, Amazon, Google) S&P 500 is down about 11.5% in 2020 (as of May 12), the equally-weighted S&P 500 (each constituent gets 1/500th weighting) is down nearly 20%. So, if you didn’t own the largest stocks, the odds are better that your stock portfolio is down about 20%. International stocks (EAFE index) are also down about 20%. Medium-sized companies (mid-caps) are down about 25% on average, as are small-cap stocks, as measured by the S&P 400 mid-cap index and the Russell 2000 small-cap index.
Most of what we do at Signature Wealth takes a more balanced approach, so most of our strategies have a blend of stocks and bonds. Many bonds are up this year, so that has likely mitigated some of the stock losses, if you own bonds or bond funds. From here, I expect a pullback for stocks, and choppy trading should be on tap for the summer. News, and the reactions to it, is changing so quickly that I think the best approach is to own portfolio that takes on the right amount of risk for you, and stick with it. If you are willing to take on more risk, you may view this year as a once-in-a-decade sort of investing event, and may want to start buying shares of companies that are built for the long-haul. If, however, you’ve found the gyrations are too much for you, you may want to dial back your portfolio risk.
Either way, it starts with a review of what you own. Establish where your portfolio sits currently. Then, I recommend to look at a Signature Life Plan. Sit down with one of our advisors (maybe over the phone or on a video call) and think about what you’d like your financial future to look like. They’ll help you compare your current portfolio to one that will be required in order to help you reach your goals. Maybe no changes are needed. Maybe an overhaul is in order. Either way, we’ll get you into a portfolio designed to get you from where you are to where you want to be with a little risk as possible.
The US economy is expected to have fallen into recession in the wake of the COVID-19 pandemic. However, we believe the US economy is likely to experience a robust rebound during the second half of the year, especially if policy makers continue to exhibit a “by-any-means-necessary” approach to defeat this virus. The stock market is NOT the economy, but is a part of it. So, the stock market may or may not move in tandem with economic data.
To sum up, I’d say buckle in. I think the next few months will be characterized by volatility as we adapt to advances and setbacks in the fight against COVID. We’ll be here, as we have been all year.
The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is made up of 3,000 the largest U.S. stocks.Õ’d
Any opinions are those of Scott Mitchell and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.
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.