Last Night’s Market Comment:
MARKET COMMENT – Sunday, March 1, 2020
As we navigate through this rough stretch in the markets, often it is good to step back and assess our investment plans. With that in mind, let’s go over both the positives and negatives of the current investment climate:
- Successful investing is a marathon, not a sprint. For virtually all of you, your investment timeframe is 10+ years. I say that because, even if you were to retire tomorrow and need funds, your yearly need is likely very small compared to the size of your portfolio. That means that the lion’s share of your investments will not be touched for 5, 10, 15+ years… hence, longer term. When you step back and think about it, do you really think the markets will be lower in 5-10 years than they are now?
- The Warren Buffett Hamburger Theory. Another question to ask yourself: is Warren Buffett, regarded as the most successful investor of our time, selling his stocks right now? Heck no. He is famous for his quote (and I am paraphrasing): “I love hamburgers. When hamburgers are expensive, I am sad. When hamburgers are on sale, I jump for joy and buy hamburgers.” Think of the market as a hamburger.
- Fast and Far. The last week has seen an unprecedented swiftness and value drop for the markets… in the vicinity of 12-14%. Historically, when the market has experienced this type of event-driven “semi-panic selling,” we have had at least a sharp snapback rally. I am not saying that we are out of the woods with this, but technically we are super-oversold here.
- The Fed and its tools. If we drop further, it’s almost a certainty the at the Federal Reserve will step up and cut interest rates sharply. This would provide increased liquidity for investment and the markets, and perhaps (as it has historically) spark a rally in the markets.
- IF we get news that the virus has been contained, or its reach is slowing. Markets like certainty and hate uncertainty. This is a clear example of uncertainty. Any good news on this front could spark a sharp rally.
- The U.S. Economy is fundamentally strong. Underneath the headlines, our economy is resilient and strong, unlike the situation during the trying days of 2008/2009.
And now, for the negatives….
- The virus is not yet contained, and nobody knows at this point when it will be. This, of course, is the biggest concern. Markets hate uncertainty (see above).
- The markets went into this event frothy, overbought, and investors by and large were complacent. Talk of a “never ending bull market” and “this is as good as it gets” had been getting airplay on financial channels. That stuff always makes me nervous. The point here is that when an adverse event hits an overstretched market, drops can be significant.
- We have a global economy. The virus has shut down economic activity across much of the continent of Asia, and is spreading to Europe (see: Italy). Even though we are separated geographically from those continents, we are not separated economically. Trade and supply chain disruptions are global, and it is anyone’s guess when things will return to “normal.”
- The U.S. bull market in equities is approaching its 12th anniversary. Historically, it is a known fact that our bull markets have lasted between 3-6 years. Some would say we are waaaaay overdue for a correction, and this event has provided the perfect excuse for the market to pull back.
So here we are. Again, it’s often wise to take a deep breath, and look at the situation as objectively as you can before making any portfolio moves. And the best move is often to do nothing at all. Remember, markets do go up and down. Also, remember when an adverse event has happened in the past, markets have always come back.
Expect more volatility. If necessary, review your portfolio with me or your financial advisor so you can be comfortable with your decision.
If you have friends that might find this commentary useful, please feel free to pass it along.
This is being provided for informational purposes only, and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. The views expressed are those of W. Mckinley & Associates and do not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates. Investment advisory services offered through Mutual Advisors, LLC, doing business as W. McKinley & Associates, a registered investment adviser registered with the Securities and Exchange Commission. Custody and brokerage services provided to clients of Mutual Advisors, LLC are offered by Fidelity Investments. Brokerage Services LLC, Member NYSE/SIPC. Securities when offered are offered through Mutual Securities, Inc., Member FINRA/SIPC. Supervisory office located at 807-A Camarillo Springs Road, Camarillo, CA 93012.