Market Update: Apr 24 2020
- Market Volatility
- Economic Stimulus
Here is a recap of our live Q&A session held on 4/24/20 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management. Please join our next Q&A on Friday, May 1, 2020 at 10 am.
Details for our next event can be found here.
Can you explain why the market has been rallying in light of record unemployment numbers and the economic shut down?
To be candid, the recent performance of the market has many advisers and professional managers a little confused. As you could imagine, we participate in as many phone calls, web conferences, and other think tanks as we can. The general consensus, as we interpret it, seems to be that the market has “priced in“ the beginning of economic recovery in the third quarter. In other words, we have written off Q2 as far as profitability goes and are focused on potential economic rebound in the third quarter. If, in fact, a rebound begins to occur by the end of the third-quarter and economic activity picks up meaningfully, then stocks were oversold, or under-priced at the lows seen in March. We believe that’s why the market is rallying.
It appears that a portion of the recent rally has been tied to the news re: COVID. The market seemed to rally on good news regarding the slowing and potential peaking of the disease. We anticipate the market will continue to react to the Virus news as well as news on getting businesses back up and running in the country.
We’ve seen some nice growth over the last few weeks, are we out of the woods?
We are absolutely not out of the woods yet. We have to remember that we are in unprecedented times, not much history to go on. At this point I believe that any investment or economic forecast is, at best, a guessing game. The fact of the matter is that this is still a health related crisis and not yet an economic crisis. If the health crisis is contained and we do not see a resurgence of cases in the third or fourth quarter, then the optimistic forecasts will have guessed right. If, however, the virus resurfaces and a vaccine is not distributed in time, then the pessimistic forecasts will have guessed right. It is most important during these times to remember your true risk tolerance and to allocate your portfolios accordingly. It is always tempting to jump into the market when you’re seeing record-breaking weeks like we saw recently. We discussed in our prior dialogue a disciplined strategy to re-enter cash into the market. Stick to that strategy and don’t be tempted to chase returns.
We would expect there to be continued volatility for some period of time due to the uncertainty of the outcomes we could have with the virus. The market may retest the lows we hit in March if we get more bad news on the virus or the recovery in businesses appears to get much worse than expected. Remember that the market is forward looking and seems to be pricing in low expectations already. If the actual news is better than what was expected then we could see continued market growth and visa versa if news worse than expected.
With all the stimulus money the government is handing out, why would we still see volatility?
While it is the largest financial stimulus package the government has ever come up with, it merely scratches the surface. As suggested earlier, the crisis has yet to develop into economic or market related fundamentals, but is still very much, in my opinion, a health scare. I believe we need to see progress with the containment and a vaccine consistently for weeks, and not just days, to be able to forecast the true economic impact with any degree of certainty. Until we have concrete data with which to make investment decisions, I believe volatility will remain.
To be determined if people that receive stimulus checks spend it or save it. If they do more spending than saving it may have more of a positive impact on retail sales etc. We would anticipate higher levels of volatility for some time. Would not be surprised if much like our lives will be governed by a new normal that the markets will also with enhanced volatility.
The views and opinions expressed herein are those of the author(s) and date noted and may or may not represent the views of Beacon Financial Advisory or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. There is no guarantee that any strategies discussed will result in a positive outcome. You should discuss any legal, tax or financial matters with the appropriate professional.
Advisory services offered through Beacon Financial Advisory LLC or Lincoln Investment, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC. www.finra.org, www.sipc.org, www.lincolninvestment.com, Tartan Wealth Management, FNA Wealth Management, and the above firms are independent, and non- affiliated.