Market Update: Jun 18 2020
- Dollar Cost Averaging
- Market Expectations
- Risk Tolerance
- Economic Stimulus
Here is a recap of our live Q&A session held on 6/18/20 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 Thursday, June 25, 2020 at 10 am.
Details for our next event can be found here
What has impacted the market movements since our last call on June 11th?
The markets have experienced quite a roller coaster ride over the last week since our last call. On June 11th we saw another substantial downturn in the equity markets due to news on increasing COVID-19 cases in many states were reported. This led investors to believe that a second wave of the virus was beginning around the country. With news on virus cases largely ignored the last few weeks this volatility came as somewhat a surprise. We believe that part of the volatility on the 11th was sentiment among institutional investors that the market was getting “ahead of itself” and excuse for profit taking may have been the underlying motive for a portion of the selling pressure. Since the 11th we have seen the markets rebound about 50% of the losses. We think that part of the rebound was the buying after a big downturn that sometimes occurs. In addition, we have seen the markets move this week due to more Fed activity in buying corporate bonds, the announcement of a $1 trillion infrastructure plan, and the news that retail sales had a historic rise in the month of May.
Any changes in your thoughts on how to invest in this market environment?
We still believe that we have not seen the last of market volatility. As we have indicated on previous calls, we believe a dollar-cost averaging strategy in this market may be the most prudent way to enter the market. Value continues to fall further behind Growth as investors have continued to gravitate to the big tech names and the “stay-at-home” stocks. We believe that the value names will once again be in favor and encourage investors to consider equity allocations include these types of stocks.
We advise clients to make sure they are sticking to their asset allocations and if appropriate, include bonds, and other non-traditional investment strategies in their overall plan. When investing in bonds, typically we recommend strategies that are total return driven and not yield driven. A solid total return bond strategy with active management may be more likely to take advantage of market movements.
As we are now almost 3 months in this market recovery, we continue to believe that we may have a summer pullback in the markets. We don’t believe that we should hit the March levels but a 10-15% decline from current levels is our expectation.
With the market having come back as much as it has, and the concern of another possible big downturn, what should we be doing today to protect the portfolio?
We typically advise against such short term portfolio management approach. In other words, you should reevaluate your exposure to risk and your risk tolerance, as well as your time horizon. If you are a long-term investor you certainly do not want to try and time the market. The last couple of months alone illustrates how getting in or out at the wrong time can really backfire. Don’t try to time the market by getting out in anticipation of a downturn unless you believe you are exposed to too much risk or may possibly need to access funds in your portfolio sooner than otherwise expected.
That said, you’ve heard us speak for several weeks about dollar cost averaging and rebalancing, and those are strategies that we recommend regardless of what the market does in the short term.
Finally, there are different products and strategies available today that help to provide a cushion or buffer against loss in certain index is over a period of time. Your growth potential is somewhat limited, but you may have an opportunity to minimize downside. Some of these products can be pretty complex and require more than just a basic understanding of how they work, so they certainly are not for everyone.
What does the presidents proposal for an infrastructure package mean to the market?
Tough to say, as we saw the last stimulus package have a significant positive impact in providing some stability to both the economy and the stock markets. In theory, companies that would benefit are more on the value side than the growth side end telecom, utilities, manufacturing . Many companies in these sectors have not participated as much in the rebound as their technology, healthcare, or biotech counterparts. So, a stimulus package that essentially feeds business directly to companies in those sectors quite possibly will help value close the gap between it and growth.. Even so, I believe the consumer still needs to remain strong or come out ahead for that to happen, which is dependent on jobs coming back and the virus not.
The views and opinions expressed herein are those of the author(s) 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.
A plan of regular investing does not assure a profit or protect against loss in a declining market. You should consider your financial ability to continue your purchases over an extended period of time.
Growth funds focus on companies that managers believe will experience faster than average growth as measured by revenues, earnings, or cash flow. While growth funds are expected to offer the potential for higher returns, they also generally represent a greater risk when compared to value funds. They tend to do better than the overall market when stock prices in general are rising, while underperforming the market as stock prices fall, taking into account that past performance does not guarantee future results. As a result, investing in growth funds may require a slightly higher tolerance for risk, as well as a longer time horizon.
The goal of value funds is to find companies whose stock prices don’t necessarily reflect their fundamental worth. In general, value funds focus on perceived safety rather than growth, often investing in mature companies that are primarily using their earnings to pay dividends. As a result, value funds tend to produce more current income than growth funds, although they also offer the potential for long-term appreciation if the market recognizes the true value of the stocks in which they invest.
Asset allocation does not guarantee a profit or protect against loss.