Market Update. What Happened to the Market

Dear clients and friends,

The last few weeks have been crazy to say the least.  Captain obvious here.  I wanted to take a moment and share some thoughts with you. It has been a challenging time to decipher what is happening in the market and in a new world of “social distancing”, schools closing out of precaution, travel restrictions and concerns on the scale of spread and potential financial impact of the coronavirus.

What Happened to the Market

The markets heading into 2020 had been on an overall 11 year bull run and was starting to look for a sell-off correction to slow things down and pause a highly priced market.  Coronavirus was the “trigger” the market was looking for to start a sell off and pull back prices.

 Monday, March 9th the S&P 500 finished the day down 7.7%.  In my opinion, this was likely the “capitulation sell off” that was based somewhat on market fundamentals.  However, since the 9th, the market has been mostly if not entirely based on fear and any focus on fundamentals has been absent.  Fear is a scary emotion because it can take over logic and cause the most educated of us to panic.  There is much commentary out there from the health community, NIH and CDC about the prevention actions taking place.  The U.S. is seeking to be proactive, get ahead of community virus spread and flatten out the rate curve of infection.  I will let the medical community give perspective on that.  It is a very fluid situation.

 The same trigger of the initial sell off, the coronavirus, is now also the reason for uncertainty we see driving extreme volatility of huge swings in the stock market.  What a ride.  These next few weeks will likely have more volatility.

Let’s review the last weeks roller coaster: Monday, March 9th -7.7%, Tuesday +4.89%, Wednesday -5.8%, Thursday -9.99% and Friday +9.36%... ending the week -10.36%.

Some truths about the stock market

• We have seen extreme volatility.

• Fundamentals have not been involved in the last week or so. It is largely pure panic; selling all stocks and even bonds without regard.

• Volatility will probably remain high for period.  Since 2008, when we have seen increased volatility, the market has moved fast on the downside but also often quick on the rebound, upside.

• This decline is different from the 2008 recession, the most recent dramatic sell off.  In 2008, the financial system, the banking backbone of the global economy was on the brink of collapse from overleverage and bad loans.  Today, the financial system is in a much stronger position and is healthy.

• Another truth about the market is that it hates uncertainty.

It is likely that the economy will slow during this period and companies’ sales, earnings will be down.  This is known.  What is unknown is how long this slower period will last.  One good thing is that it is known, as to why U.S. companies’ revenue will be down.  It is explainable and not because all these businesses are poorly run or have bad goods or services.  This is a slowdown because business has not been conducted as usual for a period- more employees working remotely, travel has been stopped to see customers/close deals and some companies are waiting logistically for parts from a manufacturing partner in China or another part of the world.

• Once these slowdowns are behind, some of the market will likely bounce back quickly.  The U.S. economy, especially the business segment will adapt quickly and adjust to be productive and profitable.

How to think about this

• Stay calm.  You don’t need 6 months of toilet paper or think you should sell your investments and move to cash

• As your advisors, we are being proactive and available to discuss your concerns.

• Trust the allocation of your investments.  On a roller coaster, would you try to exit or jump off at any point in the ride?

• Trust your financial plan.  Your plan helps lay out what each account you have is for and has a timeline for specific goals and upcoming expenses.

• Consider a rebalance of your accounts.  As markets move, and with stocks declining lately, the allocation of a portfolio can get out of line with your appropriate risk target.  A rebalance can allow an investor to purchase stock shares at a discounted price when stock markets have declined.

• Consider investing cash with a long term timeframe.

• Evaluate if a refinance of your mortgage may be viable.  30 yr and 15 yr rates have come down to record low with the US 10 year bond being under 1%.  Contact a mortgage broker to shop around for your specific situation.**

If you have questions, please ask us.  Please know we care and are being proactive and involved as much as we can.

We are available, especially in times like this.

Luke and Kevin

**Raymond James Financial Services and your Raymond James Financial Advisors do not solicit or offer residential mortgage products and are unable to accept any residential mortgage loan applications or to offer negotiate terms of any such loan.  You will be referred to a qualified Raymond James Bank employee for your residential mortgage lending needs.

 This is not a replacement for the official customer account statements or trade confirmations from Raymond James or other custodians.  Activity details including time and price will be included in the official statements and confirmations.

 The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Foley & Fields Wealth Strategies and not necessarily those of Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.  There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary.  Past performance does not guarantee future results.  Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.  Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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Our Favorites of the Year 2016

When I was in my early 20s, I remember being told by someone older… “you know, the older you get, the faster time goes by”.  I admit thinking they were a little crazy, however I now fully agree with them since many years have passed.  This year has been like “light-speed”.

Optimism is typically amplified as we celebrate Christmas and the holidays and we look to turn the calendar into a New Year.  This year is no different; 2017 seems to be about change.  

The year 2016 was a year of swings and surprises no less.  2016 had a poor investment start and outlook with the markets down nearly 11% by mid-Feb, only to swing up sharply to be even by mid-March (S&P 500), a month later.  This dramatic move in the market not surprisingly coincided with oil’s rebound from its February low.  Afterwards the markets positive momentum continued.  Then there was June’s “Brexit” vote in the U.K. which was a surprise to the pundits and pollsters alike.

And of course the U.S. Presidential election was the biggest surprise of the year; the pollsters, the “wall street insiders” and even Vegas all got it wrong. 

The expected change with a new administration concerns some and excites others.  The market has shown its excitement based on Trump’s focus on two main campaign components;

1) a large infrastructure spending program estimated at $1 Trillion, which all agree is expensive but much needed for our country’s ailing bridges, roads and logistics (both Clinton and Trump proposed)

2) the likelihood of tax reform consisting of possible IRS simplification, personal tax bracket reductions and the most heralded- corporate tax cuts from 35% to 15%.

We won’t try to predict the market or events to come in 2017, since no one really knows but we can say it will be another year of change (as every year is). 

It is essential to realize though, that change requires an intentional, planned out approach to your family’s goals, financial plan and resulting investment strategy.  Foley and Foley Wealth Strategies delivers just this with an adaptive and clear approach through the uncertainty any year can bring.  Reach out and let us assist your family.

In case you missed a blog post this year, here is a list of our favorite posts for our firm in 2016.

Financial Planning is Not 

Values=Goals.  Do yours align?

Are you a Control Freak?  Focus on what matters. 

Volatility in the Market, what is that?  It is not a bad word.

The Problem with Legacy.  Why it starts today and not when you die. 

Imprinting (on others)  

Staying Safe Online (9 ways) 

And Finally... We are still celebrating 35 years of serving our clients!!   

To a well-planned 2017!

Luke Fields, CFP®

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.  Inclusion of these indexes is for illustrative purposes only.  Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary.  Past performance does not guarantee future results.  Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.