Market Update: Jun 25 2020
- Market Expectations
Here is a recap of our live Q&A session held on 6/25/20 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management.
What are your expectations for the stock market over the coming months?
We have seen the market continue down the path of the big tech companies driving returns this year. The NASDAQ has been setting records and is hovering around the 10,000 mark for the first time in history. The growth vs. value spread is getting wider each week over the last month. It appears that investors have looked upon the big tech names as their safe investment. When economic news is less than favorable the big tech and the “stay-at-home” stocks we have discussed have led the market.
These are the things to watch over the next few weeks:
- June 30 quarter end rebalancing in pensions and institutional accounts
- COVID 19 cases on the rise in numerous states
- Will unemployment continue to trend downward?
- Will market move to more “breadth”?
These are only a few of the issues that could impact the markets and create more volatility over the coming months. We think it is likely that the market could pull back 10-15% over the next few months. Therefore, it is recommended to continue to dollar cost average into the markets.
You recently told us that one of the things to watch was numbers of coronavirus cases once the economy started to open. We are now seeing a strong surge and more daily cases, yet the market continues to hang in there. Thoughts?
- As with anything, we have to look at the cases reported in the context of many other variables. For example, we are seeing a significant increase of testing, roughly 500,000 a day. The fact that the market is not overreacting to an increase in reported cases simply tells us that there was built-in anticipation of an increase as testing increased.
- Mortality rate is something else to pay attention to. As of Tuesday this week, The total mortality rate since the beginning of the virus is roughly 5%. However, if you look just at the last month, we are closer to 2.3%. My opinion is that this confirms what many expected, and what the market likely had priced in, a lower mortality rate than originally thought. While nearly 125,000 deaths in this country is tragic, the fact that the ratio of deaths to confirmed cases continues to drop precipitously is encouraging to the market.
- We’ve also talked about watching very closely the jobs numbers and how many jobs come back. It appears jobs are starting to come back at a pace more quickly than originally anticipated.
- Finally, the weekly economic index, which measures, among other things, retail sales, unemployment claims, utility and fuel sales, and consumer confidence. While we saw a steady increase each week throughout May, we have seen a slight dip in mid June. It appears a recent drop in consumer confidence is bringing that number down a little which may indicate more volatility to come.
In short, a couple weeks worth of data in this uncertain time doesn’t change our opinion on what to monitor and how to approach investing.
I’ve read for several weeks about billionaires sitting on cash and not buying into this market yet, and now I’m starting to read of others that are predicting a bubble in the market. Thoughts?
We believe that for every argument you find that says there’s a bubble out there and the markets going to have a meltdown, there’s another that says the recovery has only just begun and we’re off to the races. It is very much worth noting that stocks are relatively expensive today based on historical data. According to yesterday’s Wall Street Journal, the S&P 500, for example, is trading at a price to earnings ratio of a little over 27 vs 22 a year ago. NASDAQ 31 vs 24 a year ago, and the DOW 22 vs 18 a year ago. Are those “bubble like multiples“? Or are the markets pricing in higher than expected earnings in the coming year? Still tough to say at this point, but it does bring us back to the comment that everybody knows but nobody likes to hear, don’t try to time the market.
A good friend of mine once told me that the stock market is a device for transferring wealth from the impatient to the patient. Remain patient in these times and stay your course.
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.
The NASDAQ is an index that tracks the cumulative results on a market capitalization basis of all stocks trading in the NASDAQ system.
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.
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.
S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. Investors cannot invest directly in an index. The Dow Jones Industrial Average is a widely watched index of 30 American stocks thought to represent the pulse of the American economy and markets. Investors cannot invest directly in an index.