The Market Reminds Us of an Old Rock Song

The rock band Blood Sweat and Tears had a hit song in the late sixties called “Spinning Wheel”. The opening line in the song was “What goes up, must come down”. Well, the stock market apparently decided to listen to an old 1969 rock song.

What a rollercoaster market we have had the last few months. The fastest retreat from an all-time high to a bear market which was followed by an explosive rally until last week. Some Dramamine for motion sickness might become a popular drug for investors.

Markets historically overshoot - both on the upside and downside. But living with this volatility is a challenge for investors.  Based on the number of days that it has moved up or down by 3%, this is one of the most volatile markets in history. Fortunately we don’t have to respond to every zig or zag the market offers.

The market has a history of being disconnected to current economic and financial conditions. It has normally retreated months ahead of a recession and has normally advanced well before the economy has started back up from a recession. This is because the market primarily reflects the expectations of investors- not the present condition of the economy. It is not so much focused on the current numbers, but acknowledging the current numbers while putting much greater emphasis on expectations of future earnings, interest rates, inflation, tax policies etc. So don’t be surprised when the stock market seems to ignore the current state of affairs- it is the norm.

The market had a big down day on Thursday June 11, down by over 1800 points- which puts it back to approximately where it was on Memorial Day.  But bond prices responded positively last week as money exited the stock market looking for safety. So once again, having assets spread over many types of investments has helped smooth the ride.

There are many questions facing investors today:

  • What will the economy look like when a lot of the stimulus money has been spent?
  • What about the debt that the government has incurred recently?
  • How will the election results affect the economy and market?
  • When will a vaccine be approved?

But there is always uncertainty in our economy and markets. Just sometimes we are more aware of it than other times. While there was not much uncertainty reflected in investors’ outlooks at the first of the year, we realized that we had no idea what was just around the corner. And we never do- we are just more aware of this uncertainty now than at other times.

But there can also be good things around the corner-and they normally win out in the long run. Just last week the medical experts seem to be more optimistic of a vaccine coming sooner than previously expected. The whole world is working on finding a remedy for this bug- and I don’t want to bet against them.

We are still working remotely at Raymond James but there is a plan to slowly go back to the office. We hope our service levels have been what you expect even as we all work from home.

We look forward to being able to sit down face to face again (hopefully without a mask on).

We hope you and your families are staying healthy and making the best out of this strange period of time we are living in. Please do not hesitate to call us with any changes in your plans or expectations, or with any other thoughts or questions.

As always, thank you very much for your trust and confidence in us.

Thanks,

Beach

 

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