Pandemic and Protests, Yet Stocks Continue to Climb?
Just when we thought society was at it’s rock bottom with a global pandemic, the murders of Ahmaud Arbery and George Floyd brought to light the systemic racism that our black friends have to deal with on a daily basis. Across the country there are daily demonstrations and reprisals with curfews by various cities.
Closer to home in Decatur, there have been two instances of racial instability with a group of white high school kids, confronting a black Oakhurst resident and a teenager on video making a racial threat.
The kids are out of school, with no curriculum, camps, access to friends. They wander around bored all day, when not playing video games.
Working parents are adjusting to the “new normal”. Which basically means accepting that kids will wander into zoom calls, working in 15 minute chunks of uninterrupted time and realizing their “work” friends are actual “real” friends.
The economy is showing warning signs
Unemployment dropped from 14.7% to 13.3%. And that is seen as a good sign!! (It has been hovering around 5% for 5 years.)
CBRE reported that landlords were only able to collect 30% of retail rent.
The Fed has never had a balance sheet greater than 5 trillion … it hit that mark on March 27th. As of today, the balance sheet is at 7 trillion. That is some serious stimulus money.
And yet the stock market…
The Stock market (something entirely different than the economy) has been seeing excellent returns.
Bonds are at historically low levels, the 10 year treasury is returning .007. Investors are starting to realize, to get real long term results, you need to be in stocks (and not bonds). As money has moved out of bonds and in to stocks, the market has gone up.
The Stock markets is a leading indicator … in the last 80 years, the market hits its low mark 107 days before the end of a recession. Of note, 107 days from March 23 takes us to the end of June.
Investors are saying
The Stock market is a mechanism to discount and value future streams of cash flow. And given known data, the current Stock market reflects the current information. Which means that investors believe the future is bright. And that there will be a V shaped recovery. But are Americans just ever optimistic?
I’m not so sure.
If you are invested for the long term, the market has a solid history of going up and to the right at around 9.5%. Don’t worry, keep buying in at your set cadence (every paycheck?) and dollar cost average in.
If you are heavy into bonds, it likely makes sense to move your allocation into a higher percentage of stocks, as bonds are not going to keep up with inflation.
If you are all in on stocks right now, it may make sense to increase your allocation into cash right now to 10-20%. There is solid data that shows optimism rules for the short term, after a primary dip, that leads to a nice spike in stocks. But then data comes in over the next few quarters that causes fear, and stocks drop to previous lows. Followed by a long, slow up trend.
If you took cash out of the market towards the beginning of the Covid, then you do need to dollar cost average back into the market and leave the majority of your money invested. Trying to time the market with a large percentage of your investment capital is a bad idea and almost never works.
If you need talk to someone about your allocations, please don’t hesitate to reach out to me.