Gut Check in Rocky Markets… 2021 Version

From the 2014 & 2016 Archives of TGIF 2 Minutes comes a timely message – updated for 2021, as markets could get fairly rocky (read: volatile) with inflation fears, unprecedented US government debt issuance and money printing. Caution is warranted. However, timeframe and a PLAN are key.

Have you asked yourself lately…

  • “Is this the ‘Big Dip’ in the markets they have warned about?”
  • “Should I be selling my stocks?”
  • “Should I be selling my bonds?”
I stress to my clients and friends: Do NOT allow short-term market moves to instill fear and lead to poor decisions.

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Zero Interest Rate World

Low and near-zero interest rates have become a fact of life. Rates could likely remain low for the foreseeable future based on the economic and US Federal Reserve environment. This statement is not meant to be a predictor of where interest rates are going. Still, the fact of near-zero interest rates needs to be on investors’ radar screens, as boring as the topic may sound!

The bond market and interest rates involve far, far more complicated math than stocks. Trying to predict bond prices and interest rates is mostly not worthwhile.

Near-zero interest rates needs to be on investors’ radar screens.

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All Cash?

“Do I go to all cash?”

“Do I go to all cash at least until after the election?”

More than a few people have asked me this question over the past several months. Even more people have probably asked themselves this question. The answer, if historical data of the S&P 500 index is a guide, is a firm NO.

This chart illustrates the impact of missing just the 25 best days in the market, the 15 best, 5 best and 1 best day.

The chart above illustrates the impact of missing just the 25 best days in the market, the 15 best, 5 best and 1 best day. The days are NOT CONSECUTIVE, they are random best days. If missed, the majority of stock market gains are missed.

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YTD Market Performance Broken Down

After talking with a number of clients and friends in the past couple of weeks it became apparent that a breakdown of YTD stock market performance would be informative. There are major pronounced differences currently in the various stock categories. An explanation of these differences could illuminate why certain portfolios have gone up (or down) more than others. 

Please note that this discussion is not meant to minimize the importance of performance. Performance is critical; however, the time frame of performance evaluation and the concept of progress toward achieving goals are even more critical to successful investing.

business charts commerce computer
Performance is critical; however, the time frame of performance evaluation and the concept of progress toward achieving goals are even more critical to successful investing.

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Investment Ideas & the Weekend BBQ

Over what will undoubtedly be a most unusual Memorial Day weekend the possible topics of conversation will be endless. Everything is fair game this year – especially politics (and maybe sex and religion too). Also high on the list will likely be:

  • what is proper social distancing
  • kids’ drive-by graduation celebrations
  • how many Zoom cocktail hours were held in the past 8-10 weeks.

close photography of grilled meat on griddle

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Weekend Edition – Markets’ Response to Crisis

As we all “shelter in place” and our kids are in “cyber school” we take in news both of the day and of the bigger picture. Here are several personal financial-related cautionary thoughts and a quick graphic (see below). People way smarter than I say that data is key to decision-making and the ability to stick with a plan in crisis situations.

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What the Markets Are Telling Us

The markets are telling us that the Coronavirus situation and the aftermath of an economic slowdown is likely not going away any time soon. The evidence is in the “indiscriminate selling” of nearly every asset class:

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Data of the history of major market declines since 1926 – and their 1, 3 and 5-year aftermaths on average.*

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Will There Be A Recession?

The past several weeks has seen the first pandemic in the era of social media. The last H1N1 Influenza pandemic was in 2009. In 2009, Facebook was young (founded 2004) and Twitter was in its infancy (founded 2006).

In addition to a handful of other major factors, the Covid-19 coronavirus is descending on the planet during: a US Presidential election year, a high-level fight over oil between the Saudis and Russia AND immediately following an almost 11-year UP stock market in the US.

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Special Edition: Now Russian Oil Is In the Mix

A couple of points of perspective to this very hectic open to the US stock markets:

  • There are comparisons today and the past two weeks to the 2008-2009 financial crisis. The US stock markets were most volatile n Fridays and Mondays throughout late 2008 with financial institution failures that took place over or near weekends – Bear Stearns, Lehman Brothers…and then Merrill Lynch.

brown and white factory building during night time
Oil is a large, large component of US and global stock indexes and is partly leading to market weakness globally.

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Three Factors at Work in the Financial Market

Lifestyle, goals and spending are what drive a successful investor’s attitude in volatile markets.

Whew! What a stretch in the markets. During record-breaking volatility both UP and DOWN I have been on the phone continuously with clients and friends for 2-3 weeks. The BEST part is that 99% of the phone calls have been positive in confirming:

  • Goals
  • Asset Allocation
  • …and various conversations about beverage of choice.

person using macbook air on table
Lifestyle, goals and spending are what drive a successful investor’s attitude in volatile markets.

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