COVID 19 & the Fear Cycle of Investing
March 16, 2020 - Season 3, Episode 1
Covid19, also known as coronavirus, is impacting the economy in ways we haven’t seen before. We are in uncharted territory; the markets are volatile and consumers across the globe are rushing to purchase food and staples to keep them going for 2 weeks if a quarantine occurs. In this special report, Chris Abely of CTMA Wealth Management will recap what has happened in the markets and what’s next for investors.
This Time is Different – Just Like All of the Other Times
“This time is different” – is the typical investor sentiment when one is in the middle of the volatile market swings that result from exogenous shocks to the world equity markets. And while each episode does indeed have their own unique characteristics, they share similar traits regarding their outcomes. Broadly speaking, exogenous shocks from previous viral outbreaks go through phases of discovery, uncertainty and reaction to that uncertainty. This is followed by increasing clarity of the situation leading to a decreasing level of uncertainty and finally the market’s reaction to this decreased uncertainty.
The spread of the coronavirus beyond China has unnerved the U.S. stock market this week and threatens to temporarily slow economic growth overseas and potentially here in the U.S. Like many virus outbreaks of past years, think SARS or H1N1, we believe the coronavirus will ultimately be contained and economic conditions will return to normal.
As with past flu outbreaks, the reaction in the stock market can be sharp yet relatively short-lived. Economic growth temporarily slows as people hunker down and stay indoors, as we have seen in several cities overseas. After large gains in stocks in 2019, it is our feeling that the stock market needed a breather and the coronavirus has provided just that catalyst. Like past flu outbreaks, a 5% to 10% correction in stock prices can be expected, and we are right in the middle of that range as this note is being penned.
Investment portfolios at GSB Wealth Management consist of high-quality instruments and are well-diversified over numerous asset classes and economic sectors. We strongly feel that sticking to the plan and not panicking in situations such as these is the best course of action. Please call if have questions or would like to discuss your accounts in greater detail.
In our Annual Review we cover:
Happy winter! No snow in sight and hovering around 50 degrees in January isn’t a bad thing, if only the sun could make an appearance more than once a week.
We have talked in past newsletters about low visibility trying to navigate through the current political and economic environment. Just to prove everybody wrong, U.S. stock markets had one of their best years in recent memory. Here is an old axiom that goes like this – “bull markets like to climb a wall of worry”. I suppose there is enough to worry about to propel the stock market to levels not one market prognosticator saw coming on January 1, 2019. We enter 2020 with a ton of market momentum behind us and economic fundamentals that appear to be the best in over a decade. We still sense a good deal of pessimism among individual investors, which may allow the market to move higher in 2020 despite the U.S. taking down the highest Iranian military official, just announced on the news this morning. Our country’s sabre rattling around the world, whether justified or not, is concerning given many of these countries have nuclear capabilities of some degree.
Does Debt Matter?
September 17, 2019 - Season 1, Episode 3
In Season 1, Episode 3, we discuss the amount of debt in the United States (U.S. Deficit, Student Loan debt and Corporate Debt) and some of the impacts the current market cycle will have on our ability to pay it back.
Where Are U.S. Interest Rates Going and Why?
September 10, 2019 - Season 1, Episode 2
In this episode, Chris Abely talks about the direction of U.S. Interest Rates and how to combat the effects of declining rates.
The US Debt Cycle & Its Impacts on Investors
August 26, 2019 - Season 1, Episode 1
In this segment we will take a closer look at where we are in the business cycle and the impact debt will be having on the economy. We will discuss the longest peace time market expansion cycle since 1852 and how student debt and the deficit needs to be viewed. We will also provide you on some thoughts on where to invest in this volatile market.
2019 has had its ups and downs, please read our commentary and market outlook recap for the first six month of 2019.
We finished the March 31 newsletter with the statement "now is the hardest time to invest". We begin the current edition with "now is the hardest time to write a newsletter". We will explain in a few minutes!
We all must admit that the stock market can be a confounding creature. After looking like it was going off a cliff late last year, the S&P 500 has logged a gain of 18% year-to-date. I can assure you no Wall Street strategist saw this coming! We all know by now that stocks go up by around 10% per year on average going back a hundred years. Having said that I have never seen the stock market go up by exactly 10% in any one given year. As Warren Buffett himself once said “In the short term the market is a voting mechanism; in the long term it is a weighing mechanism”. With today’s technology millions of investors can vote (trade) by the split second. Our task at GSB Wealth is to sort through all the short-term noise and separate the wheat from the chaff and not be overly concerned with the day to day wiggles in the stock market. In earlier newsletters we posited that the current economic expansion and stock bull market might carry on longer than anticipated simply because the economy was so slow to recover after the last recession. Also be mindful that next year is an election year and the powers to be will likely do whatever is necessary to keep the economy growing and the stock market humming. You can envision here one of the episodes of the Rocky (a squirrel) & Bullwinkle (a moose) show from the 1960’s where Bullwinkle mimics a magician and tries to pull a rabbit out of his hat, but is first greeted by a bear, followed by a lion, a tiger, then a rhino before he finally gets the rabbit to appear. It isn’t unfathomable to liken this to our current trade and nuclear negotiations with China and North Korea where after several false starts and a lot of growling a miracle happens and agreements are signed.
"Wisdom is not a product of schooling but of the lifetime attempt to acquire it." ~ Albert Einstein