Market Perspective 5/15/2020
By now, you may have heard of the stock market recovery taking the shape of numerous letters of the alphabet. Commonly used is the V-shaped recovery. The “V” is represented through a swift decline followed by a swift increase once the inevitable bottom is reached. There are many more shapes being discussed this time around, including; U (decline followed by a flat period before recovery), W, L, and in some cases, the square root sign √. Perhaps you have heard of others?
We don’t put a lot of time into forecasting the shape of a recovery; there are too many variables, and attempting to “bet” on any one shape in our view is a fruitless exercise. Markets don’t repeat; however, there is an element of rhyming. The stock market and the economy will recover from where we are today, and while the path is unknown at this time, we emphasize the importance of having a well-crafted plan and sticking to it.
Plans are created in preparation for events, both known and unknown. How do we plan for the unknowns? We use a bucket approach to invest your assets based on when you intend to use them. This allows us to have a different timeline and purpose for each segment (bucket) of your portfolio, from short term to long term. Additionally, we hold onto levers within the portfolio. Being able to pull levers, like rebalancing into stock markets while down in price, can help create and maintain your long term plan stability.
Going through a market environment like the one we are currently in is not enjoyable – we understand the potential for uneasiness, concern, or sleepless nights. Please know that we are here for you, with a plan that we are sticking to, and that is not dependent on any particular letter of the alphabet.
Notes on the week
The US stock market (S&P 500) was down approximately 3% over the past five days; since the peak of late February, the index is down by 16.4%
The US Treasury is expected to issue nearly $3 trillion worth of bonds this quarter as part of the measures to combat the COVID-19 triggered economic slowdown
For comparison, the US Treasury issued approximately $3 trillion in bonds during all of 2019 (SIFMA.org)
The Federal Reserve’s actions of lowering short term borrowing rates to near zero percent has led money market and short term CD rates to decline to less than half a percent (schwab.com)
Lower borrowing rates can help spur economic growth; however, a side effect is that savers can be penalized through lower yields on cash-type investments
Mortgage refinancing activity has increased by 200% compared to one year ago (Mortgage Bankers Association)
Mortgage rates near historic lows have triggered more homeowners to pursue refinancing options
On the inflation front, broad consumer prices have decreased from March to April (US Bureau of Labor Statistics)
Meat, poultry, fish, and egg prices as a group increased by 4.3% while energy prices decreased by 10%
While evaluating broad inflation measures is important for economic purposes, inflation is a very personal experience which we take into consideration when planning