We Can Help You See 2020 More Clearly
By Luma Wealth on October 27, 2020
What Just Happened?
2020 has been a year unlike any other. Between economic shutdowns and quarantines, working from home, toilet paper shortages, a precipitous market decline and bounce back, it can be difficult to make sense of it all and determine what may lie ahead. In a recent Town Hall, our Chief Investment Officer, John Silvis, spoke with Advisor Emily Drake and clients to answer some of investors’ most pressing questions. Below is a summary of what he had to say.
Question: What happened to the stock market in 2020?
Answer: It’s been quite the roller coaster ride! We started the year off with about a 5% increase in February, then experienced a decline of about 35% from February into March due to the pandemic. However, the market has since recovered and we’ve seen a 60% increase from its low on March 23rd through early September. We experienced a correction of about 10% in September, but we believe that fourth-quarter seasonality, which is typically positive for the S&P 500, will kick in for the remainder of the year.
As you can see in the table below, the fourth quarter has historically been the best quarter of the year.
Source: Strategas Research
Question: How can there be a bull market when so many people are unemployed?
Answer: Unemployment was at a historic low, pre-pandemic, then quickly climbed to an all-time high of almost 7 million. Since then, unemployment claims have come back down to around 900,000 recently and seem to have stabilized. It’s a bifurcated labor market with most unemployment in the service industry, but there seems to be a general consensus that there will be more stimulus to help those hardest hit. The rest of the economy seems to be doing fairly well. Consumer net worth is moving higher, with housing sales and prices on the rise stemming both from pent up demand and a low interest rate environment. As consumers start to feel more confident about the stability of their assets, they spend more money. When the economy is growing, corporate earnings tend to grow which is good for the markets, both domestically and globally. It is also important to remember that the markets are prospective and forward looking, so they have already incorporated the bad news.
Question: What will our economic recovery look like?
Answer: You may have heard discussions about the shape of our recovery and whether it will be a V, W, Y or a Nike Swoosh. In the second quarter, GDP (or Gross Domestic Product) dropped by almost 32%, the worst decline on a quarterly basis in the last 80 years and, hopefully, the worst we will ever see. However, we believe the economy has bottomed out and that our recovery is well under way — and it is beginning to look more and more that the recovery will be shaped like a V.
Question: Is now a good time to invest in bonds?
Answer: At this point, the yield curve is flat with interest rates at historic lows and not expected to increase any time soon. Although we believe equities are more attractive relative to fixed income right now (and we are overweight equities), we feel it is still important to maintain a diversified portfolio to achieve your long-term goals.
Question: How will a weaker dollar impact investments?
Answer: We are seeing a weaker dollar, which can be an equity tailwind. When the dollar weakens, it’s typically better for U.S. investors who hold international equities because international stocks are worth more after being converted into U.S. dollars. We’ve seen emerging markets become one of the better performers since bottoming in March; and if the dollar remains weak after the election, which we expect it will, that should also be beneficial for emerging markets.
Perhaps the biggest indicator that the worst is behind us is that Costco is now stocked with toilet paper and we expect that everything will be okay. There will be a presidential inauguration in January, hopefully some stimulus for the parts of our economy still suffering, and a vaccine on the horizon.
If you have additional questions about your investments or long-term goals, please reach out to your advisor. We want you to feel financially fit! Please click the link and sign up for Financial Fitness Solutions for WomenTM – a webinar that walks you through the steps to financial wellness. And invite a friend to join you!
