Market Update: Aug 20 2020
- Market Expectations
- Protecting Gains
Here is a recap of our live Q&A session held on 8/20/20 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management.
Details for our next session, August 27, can be found here.
What are your expectations for the stock market over the coming weeks?
We have seen the market continue down the path of the big tech companies driving returns this year. The S&P 500 closed at a record high on August 18th thus officially pushing the index from a bear market to a bull market. 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:
- The stalemate in Congress over latest stimulus package. How long will it be until a deal is done?
- COVID 19 cases seem to be stabilizing in many states. Some universities that were in-person have already shifted to on-line. Does this trend continue?
- Will growth vs. value difference continue to widen?
- The election is less than 3 months away. We believe that the markets will become more volatile over the coming weeks.
- Will the market experience a pull-back after reaching new highs this week?
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 in to the markets.
What can I do to protect stock market gains achieved over the last few months?
In order to help protect stock market gains investors could implement one or more of the following:
- Sell stocks to protect gains and hold proceeds in cash (be careful of tax implications for taxable accounts).
- Rebalance holdings to lower stock allocation (could also have tax implications for taxable accounts).
- Invest in options that serve as a hedge to stock positions-be sure you know the specific risks prior to implementing this recommendation.
- Invest in structured products that provide a downside buffer – work with a knowledgeable professional who understands these products.
There are advantages and disadvantages to these and any investment strategy. Contact us for help in reviewing your particular situation and what strategy may be best for you.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts 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. 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.
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.
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.
The goal of value funds is to find proverbial diamonds in the rough; that is, companies whose stock prices don’t necessarily reflect their fundamental worth. In searching for these companies, managers look for what many experts call a "margin of safety." This means that the market has discounted a security more than it should have and that its market value, the price at which it is trading, is less than its intrinsic value, the present value of its future cash flows. 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.