“…and there is nothing new under the sun…”
Fear, worry, and panic; gosh these are painful emotions. Haven’t we all felt them? Do we feel them now?
Look at the headlines, they read like a bad movie, and like all bad movies, we expect the worst until the end when Hollywood saves the day. Except for when life resembles fiction and the pain is real.
So, how should we look at the headlines today? What is the best route to take with your investment money when the stock markets (S&P 500) sell off 10% (& counting) in 6 business days? Let’s look at history to find out.
In early August 2011, Standard & Poor’s downgraded the United States’ long term credit rating. This created significant uncertainty in securities markets all over the world. US stocks (S&P 500) lost nearly 17% in 12 business days during this period. The stock markets then flattened for a couple of months before recovering significantly.
In late August 2015, the US stocks (S&P 500) lost approximately 11% in 7 business days only to flatten out, then recover over the next few months. In the fourth quarter of 2018, the S&P 500 lost nearly -20% only to recover and grow nicely in 2019.
In today’s high tech markets fast shocks can happen more often than in the past., but market corrections are not new events. So, let’s look at the facts.
As we measure data, our current framework is that Market Sentiment is positive (but quickly moving negative), Monetary Policy as measured by the Fed is positive, Economic Growth is neutral but growing, and Market Valuations are negative. With this in mind, our outlook for 2020 is fairly positive except for the impact of the Coronavirus. We believe that this is currently an unmeasurable factor. Because of the current uncertainty investors want out, hence the selloff this week.
So, what are we going to do about it? We will continue to follow our investment rules which were built for times like this. As credit spreads have widened this week our rules dictate that we will move to a “risk-off” position. Think of this as your exit strategy, moving more conservative in troubled times. However, the good thing about using math formulas to determine this conservative move, is these same formulas will give us direction as to when to reinvest your money into a more growth-oriented position.
We do not know the future. Is there a recovery around the corner or a further decline? However, you can be confident that we are watching your investments and measuring data to make the best decisions possible in your account.
As King Solomon said a few millenniums ago “What has been will be again, what has been done will be done again; there is nothing new under the sun.” Ecclesiastes 1: 9 (NIV)
We appreciate your trust in us!