Rising Cases and Thoughts on the Market - Marty Moore, Carroll Financial
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March 25, 2020

Rising Cases and Thoughts on the Market

Author: Marty Moore, CFP®

 

As it has been expected, the number of Covid-19 cases in the U.S. is ramping up.  As testing too continues to ramp up, almost certainly the number of cases will accelerate over the coming weeks and, more probably, the coming months.  From all that I have learned lately it’s important to also follow the trend of serious cases and deaths.  Many experts I’ve heard say this is really the more important trend to follow.

 

This is not a prediction (I wouldn’t be so foolish) but I do believe that, for the foreseeable future, the stock market won’t move so much based on whether things (the virus and the economy) are actually getting worse.  We all know that the virus is going to get worse before it gets better, and we know the economy is likely to get much worse from here.  Investors know this too and the market has already moved down strongly in anticipation of the tough days ahead.

 

The market, instead, is likely to move on whether things are trending better than expected or worse than expected.

 

If we can begin to bring the virus under control and begin to see glimmers of hope, I believe the market will react favorably.  If this doesn’t happen, and our hospitals become overwhelmed and we begin to see deaths spiral beyond what other countries, especially Italy, have experienced, it’s likely the market will move the other way.

 

It will take some time and we won’t have much data or information to go on for a while, but in the coming months if we begin to see evidence that the stimulus measures that Congress enacted late last night are having a positive impact to keep the coming recession from being too deep then this will be very positive.  But, there’s no guarantee the stimulus will work.  The depth of the recession can only be speculated at this point as can the success of the financial rescue package that is coming.

 

Uncertainty will be with us for a while.  That’s discomforting to be sure.  The number of 5%, even 10%, moves up and down in the market in a day’s time is unprecedented.  But I think we can expect this to continue for a while.

 

What I do take comfort in is the vast resources and overall ability for the U.S. to come out of this and rebound strongly at some point.  To me, it’s OK to be concerned about the near-term and optimistic about the long run.

 

—————-

 

Last Friday Kris Carroll conducted a webinar to give our thoughts on Coronavirus and the current state of the financial markets.  We had close to 500 clients join in, probably double the number of any previous webinar.  As we always do, clients were invited to send in questions ahead of time, some of which Kris was able to address during the webinar.  The question asked more than any other was: How are you investing your own money now and what (if anything) are you doing proactively during this crisis?

 

Excellent question.  Here’s what’s going on with me, how I am invested now and what I have done recently.

 

My investments are arranged fairly simply.  Both my wife Lynn and I have 401k and IRA retirement accounts.  We also have a long-term investment account outside of retirement accounts.  And we have short-term/ready reserves.

 

All of our retirement accounts are 100% invested in stocks (broadly diversified mutual funds and exchange traded funds).  100% of long-term liquid money is also 100% equity.  The short-term/ready reserves is in an online savings account and money market fund.  I am not in need of any of these accounts to provide income for me now or for the next several years. That is why I feel comfortable having a high equity position.  This has been my approach for many, many years.

 

I’ve made one move recently in response to the current market.  On March 13 when the market (S&P 500) was down about 20% from its high point in February I sold a small amount in a short-term bond fund (ready reserves) and bought shares in a broad market stock fund.

 

After that move the market has continued down so I don’t look so smart right now.  I’m confident, however, that sometime down the road I will look back and be glad I made this move.  I have no idea whether it will be 6 months from now or 5 years from now but that really doesn’t matter.  Again, no guarantees, but odds are that I will still be working and won’t need this money for at least another five years.  And, on a statistical basis, the stock market provides a higher return than bonds or cash over a 5 year period a majority of the time (not always, but most of the time).

 

(On a side note, whenever Lynn and I are deep in serious conversation and I use the word ‘statistical’ she immediately ends the conversation and begins using words that I don’t particularly care for. … I understand.)

 

I also continue to make bi-monthly contributions to our company 401k plan.  The shares I’m buying now are costing, on average, about 30% less than they were just a few weeks ago.  I’m not glad that market has gone down this much but the long-term benefit of consistent, ongoing savings is the process for buying more shares when the price drops and fewer shares when it’s at a high point.

 

Here’s another thing I’m doing … or, rather, not doing.  I’m not looking at my accounts or statements.  I look at it this way; how would I benefit knowing exactly what the depressed value is?  What am I going to learn?  I haven’t looked at my 401k since the end of last year.  I don’t know what the value was on February 19th (market high this year) and I don’t know the exact value today.  I do know, however, that I am surely benefiting by continuing to make contributions.

 

————–

 

I will never forget the market crash in October 1987.  I had been married for a few years and we had started saving and investing for our future.  We had invested a small amount in a stock mutual fund.  News didn’t reach us as quickly back then so when I got home from work and saw the market down 22% for the day my heart sank.  I felt a little sick.  The next day I went immediately to the business section of the newspaper to find the price of the fund (how archaic, huh?).  I felt even worse then.

 

But, I held onto the fund.

 

Three years later I became a financial advisor and have now, in addition to the ’87 crash, experienced 9/11, the 2000-2002 tech bust, and the 2008 financial crisis, as both an investor and an advisor.  This time may be different.  It will always be that way.  But, for me, each of these times has taught me to separate, as best I can, the emotion from the intellect.

 

Extreme emotion triggers the amygdala part of the brain, the part that is responsible for our fight-or-flight response in times of stress.  It makes us want to react, to DO SOMETHING to ease the tension and pain.  It fights hard when we’re deep into the red (chart below).

This is why doing nothing, even though intellectually we know it’s the right thing to do, feels so uncomfortable during times like this.

 

My experience though has taught me that this is likely to be my best move under the current circumstances.

 

—————

 

I continue to hope and pray, as I’m sure you do, that Covid-19 will run its course without an escalation of severe illness and death.

 

I’m hopeful, and I remain confident about the future.

 

As always, thanks for reading. And please continue to call with questions or concerns.
Marty

 

 

 

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