Personal Finances: Focusing on What You Can Control + Financial Market Update + 3.31.2020

Personal Finances: Focusing on What You Can Control + Financial Market Update + 3.31.2020

FINANCIAL MARKET UPDATE 3.31.2020

STORY OF THE WEEK

personal finances: focusing on what you can control

GUEST AUTHOR: JUSTIN VOSSEN, CFP®, NAPFA, INVESTMENT ADVISER & PRINCIPALL

Like many of us, you may feel a bit disoriented, fearful, and anxious. Not only has your life been dramatically altered in the past few weeks, but the market continues to drastically swing every day. The uncertainty of it all is perhaps the most difficult thing to comprehend. While nobody has answers, we can be sure of one thing; mankind has focused all of its resources on one problem. One can hope that with a dedicated effort, positive change is on the horizon.

The disruption to the financial markets and economy is a difficult thing to gauge. Globally, many governmental programs are focused on mitigating the damage in the near term by stimulating their economy in various ways. This stimulus will provide a lubricant for the financial system in order to continue to function as normally as it can.

There is little question that there will be a recession. We have already dipped into a bear market as fast as we have seen in history. Since 1926, the average bear market lasted 22 months, while the longest bull market lasted 9 years.  Bull markets follow bear markets, and much of the recovery typically comes in the front end of the bull market.

WEEK IN REVIEW

  • On Friday the House approved the CARES Act, which was quickly signed by the President. The rescue package is designed to provide support to the economy that has been damaged by the coronavirus fallout. The $2 trillion stimulus will be the largest in history, and roughly doubles the stimulus package used during the financial crisis. Support measures from the bill include increased unemployment benefits, direct payments of $1,200 to individuals, small business loans, and support for large corporations, hospitals, and local governments (among other items).
  • Last Thursday the weekly publication of initial jobless claims garnered significant headlines. This weekly measure represents individuals who file for unemployment benefits for the first time. The figure had been hovering around multi-decade lows just a few weeks ago, but jumped to the highest level ever. At 3.3 million, the recent reading dwarfs the peak during the financial crisis of 665,000, as well as the all-time record of 695,00 in October 1982. The spike in jobless claims is a testament to how abruptly the response to the coronavirus has slammed the breaks on economic activity.
  • Additional economic data to be published during the week may begin to reflect the impact of the coronavirus on the economy. On Wednesday we will get an update on manufacturing activity for March. On Friday we will get the Jobs report, as well as an update on services sector activity for March.

HOT READS

Markets

  • Trump Signs $2 Trillion Coronavirus Relief Bill As The US Tries to Prevent Economic Devastation (CNBC)
  • China’s Coronavirus-Battered Economy Shows Tentative Signs of Renewed Life (WSJ)
  • Larry Fink Says Economy Will Recover From Coronavirus, ‘Tremendous Opportunities’ in Markets (CNBC)

Investing

  • We Can’t Prevent Market Panics. We Can Control How We React. (Zweig)
  • A Short History of Dead Cat Bounces (AWOCS)
  • Three Reasons Its Not 1929 (The Reformed Broker)

Other

  • Even If a Restaurant Worker Coughs Or Sneezes Directly In Your Food, You Won’t Catch Coronavirus From Eating The Meal (Business Insider)
  • 15 Best Work From Home Tips During the Coronavirus Pandemic (Prevention)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

Personal Finances: Focusing on What You Can Control

Personal Finances: Focusing on What You Can Control

 

LUTZ BUSINESS INSIGHTS

 

personal finances: focusing on what you can control

justin vossen, cfp®, napfa, investment adviser & principal

 

Like many of us, you may feel a bit disoriented, fearful, and anxious. Not only has your life been dramatically altered in the past few weeks, but the market continues to drastically swing every day. The uncertainty of it all is perhaps the most difficult thing to comprehend. While nobody has answers, we can be sure of one thing; mankind has focused all of its resources on one problem. One can hope that with a dedicated effort, positive change is on the horizon.

The disruption to the financial markets and economy is a difficult thing to gauge. Globally, many governmental programs are focused on mitigating the damage in the near term by stimulating their economy in various ways. This stimulus will provide a lubricant for the financial system in order to continue to function as normally as it can.

There is little question that there will be a recession. We have already dipped into a bear market as fast as we have seen in history. Since 1926, the average bear market lasted 22 months, while the longest bull market lasted 9 years.  Bull markets follow bear markets, and much of the recovery typically comes in the front end of the bull market.

One could argue that the markets are like a rubber band, the further you pull it back the quicker and harder it snaps back. As a result, in this particular environment, we recommend that we hold steady and make sure we have enough cash to get us through the coming quarters. That way we can effectively tune out the noise, focus on long-term goals, and let the benefits of diversification play out.

To conclude, if the best advice we can provide is to hold steady and ride through these coming weeks/months, what can we be doing proactively to help our mental and financial state?

We will be contacting Lutz Financial clients to discuss a variety of the following topics:

  • Gather tax filing items. This will help provide some level of certainty on payments/estimates and wrap up last year. In addition, it will allow you to plan for this coming year, as well to get closure.
  • Review your home budget. Are there things you don’t need immediately? Do you have unnecessary subscriptions or payments that don’t need to be made?
  • Look at tax-loss harvesting and asset location. Are there any tax plays now when the market has pulled back that you couldn’t do when greater gains were built-in?
  • Should you consider a Roth IRA conversion?
  • Should you reconsider you required minimum distributions for this year?
  • Revisit healthcare proxies, living wills and other advanced directives.
  • Make 2020 Roth/IRA contributions.

If you have immediate questions or concerns, please contact Lutz Financial today at 402.827.2300.

ABOUT THE AUTHOR

402.827.2300

jvossen@lutzfinancial.com

LINKEDIN

JUSTIN VOSSEN, CFP®, NAPFA + INVESTMENT ADVISER, PRINCIPAL

 Justin Vossen is an Investment Adviser and Principal at Lutz Financial. With 21+ years of relevant experience, he specializes in providing wealth management and financial planning services for high net-worth families, business owners in transition, endowments and foundations. He lives in Omaha, NE, with his wife Nicole, and children Max and Kate.

AREAS OF FOCUS
  • Investment Advisory Services
  • Comprehensive Financial Planning
  • Business Owner Planning & Succession
  • High Net Worth Families
AFFILIATIONS AND CREDENTIALS
  • CERTIFIED FINANCIAL PLANNER™
  • National Association of Personal Financial Advisors, Member
  • Financial Planning Association, Member
EDUCATIONAL BACKGROUND
  • BSBA in Economics and Finance, Creighton University, Omaha, NE
COMMUNITY SERVICE
  • St. Augustine Indian Mission, Board Member
  • Nebraska Elementary and Secondary School Finance Authority, Board Member
  • St. Patrick's Church, Trustee
  • Mount Michael Booster Club Board
  • Lutz Gives Back, Committee Chair
  • March of Dimes Nebraska, Past Board Member

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Personal Finances: Focusing on What You Can Control + Financial Market Update + 3.31.2020

Controlling What You Can + Financial Market Update + 3.24.2020

FINANCIAL MARKET UPDATE 3.24.2020

STORY OF THE WEEK

CONTROLLING WHAT YOU CAN

A critical concept investors must understand is that markets are forward looking. This means prices reflect the aggregate of all future expectations. As a result, stock prices will often decline (rise) ahead of bad (good) data. With the S&P 500 down over 33% from its mid-February peak, the market is definitely expecting some bad news. We are now on the precipice of those expectations becoming reality. As coronavirus testing ramps up, the number of confirmed cases will likely jump. At the same time, economic data (which is backwards looking) is going to start reflecting the impact of the virus on business and consumer activity. The news flow has been scary, but it will probably get worse before it gets better.

The real question relates to how expectations will compare to reality. The market has already priced in a great deal of the bad news that we are about to get. Has it fallen too much? Or not enough? It is impossible to know in advance, and it is out of our control. Instead of dwelling on this, investors are better served by focusing on what they CAN control.

Recent volatility has presented a variety of opportunities for investors. For those that are not in or near retirement, the selloff provides a BIG opportunity to invest at a steep discount. Many investors could also benefit from “rebalancing” their portfolio. Balanced portfolios made up of both stocks and bonds have likely seen their allocation to stocks fall relative to their bonds. The act of rebalancing moves the portfolio back to its target by selling what has done relatively well (bonds), and buying what has done relatively poor (stocks). Effectively buy low/sell high. Finally, tax loss harvesting can be beneficial for any taxable investor. Tax loss harvesting involves realizing losses on certain positions, and investing the proceeds into a similar (but not substantially identical) investment. The losses generated can be used to offset other realized gains and a certain amount of ordinary income in the current tax year, while unused losses can be carried into futures years. Each of these items are within an investor’s control, and offer a way to take advantage of an otherwise scary and tumultuous event.

Remember this important concept: markets are forward looking. Stock prices fell in advance of the bad news arriving. Like all of the past challenges our nation has faced, we will overcome this threat. Expect prices to rise ahead of the good news.

WEEK IN REVIEW

  • On Monday the Federal Reserve dramatically increased the level of support it is providing to the markets. Headlining the new support measures is a new program called the Secondary Market Corporate Credit Facility. Under the program the Fed will begin purchasing corporate debt (in addition to the previously announced agency mortgages and Treasury bonds). This includes individual investment grade bonds, and ETFs that are comprised of investment grade bonds. The corporate bond market has been under pressure amid the coronavirus fears, and the Fed’s purchases is designed to provide some stability.
  • Congress continues to work on a large stimulus bill aimed at mitigating damage to the economy caused by the coronavirus. The amount of stimulus being discussed would be very large, even compared to what was rolled out during the financial crisis.
  • Last Thursday the market got a small taste of the bad economic data to come. The number of new individuals filing unemployment increased by roughly a third, and the number is expected to increase even more dramatically this Thursday. Today we will get an early look at activity in the services and manufacturing sector when HIS Markit publishes its flash (early estimate) PMI data. This survey based data is expected to reflect a sharp drop in sentiment and activity during the month of March.

HOT READS

Markets

  • Fed Surprises Market With Program to Support Corporate Bonds Amid Coronavirus Pandemic (CNBC)
  • Congress is Getting Closer to a Deal on the Massive Coronavirus Stimulus Bill (CNBC)

Investing

  • What if You Buy Stocks Too Early During a Market Crash (AWOCS)
  • The Panic of 2020? Oh, I made a Ton of Money – and So Did You (Zweig)
  • Bird in the Hand (TheBelleCurve)

Other

  • This is your Brain on a Crashing Stock Market (Zweig)
  • Coronavirus ‘Infodemic,’ Here’s How to Avoid Bad Information (WSJ)
  • Blood Donations Needed During Coronavirus Pandemic (CNBC)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

Personal Finances: Focusing on What You Can Control + Financial Market Update + 3.31.2020

Large One-Day Market Declines + Financial Market Update + 3.17.2020

FINANCIAL MARKET UPDATE 3.17.2020

STORY OF THE WEEK

LARGE ONE-DAY MARKET DECLINES

Over the course of the last week the market has experienced extreme volatility. The last three days alone have seen the largest one-day drop since 1987, the largest one-day gain since October 2008, followed by the new largest one-day drop since 1987. These dramatic price moves come as the market incorporates new developments, and tries to anticipate the ultimate impact on businesses and the economy.

It does not matter who you are, seeing the value of your portfolio decline is painful, and watching the market register these large drops in rapid succession will make you feel the pain won’t end. History, however, shows us that it will.

The table below highlights the 20 worst one-day declines for the S&P 500 going back to 1950, and how it performed over a handful of subsequent periods. It turns out the market has responded to these large drawdowns in a variety of ways. In some cases stocks have rebounded quickly and delivered positive returns over all subsequent time periods. Other cases were followed by negative returns in the near-term, with positive returns coming over the longer time periods. There was even a case where the market rallied immediately after, only to decline again over the longer periods (but ultimately recover).

Source: Morningstar Direct. Data from 1/1/1950 to 3/16/2020. Stock Returns are based on the S&P 500 price return index, and exclude the effect of dividends. Return series greater than 1 year is annualized.

The important take-away resides in the green summary section of the table. Here we compare average performance following a large decline with the typical market experience over the entire (roughly) 70 year period. Not only have stocks generally been positive following a large decline, they have actually been materially higher than normal. The bottom line is lower prices today lead to higher returns in the future.

Recent volatility in the market is without a doubt unnerving. Just remember the decline in your portfolio is not permanent unless we make it so by selling. The reason we maintain some assets in cash and bonds is to get through these tough times without needing to sell stocks. We are fortunate to have a wonderful group of clients that understand this and have maintained discipline and patience. We know it’s not easy, so please don’t hesitate to reach out to us if you need to.

WEEK IN REVIEW

  • On Sunday afternoon the Federal Reserve made a surprise policy announcement aimed at supporting the economy and financial system amid the fallout from the coronavirus outbreak. The federal funds rate was reduced by 1.0% to a new target range of 0.00-0.25%, following up on a 0.50% cut to the rate just days prior. Additionally, the Fed reduced the discount rate (rate at which banks can borrow from the Fed) to 0.25%, and announced it will restart a bond purchasing program known as “quantitative easing” (QE). While the Fed may still have other tools at its disposal, this move represents a significant use of its available firepower.
  • In addition to the monetary policy announcement, there appears to be movement on the fiscal front. Over the weekend the White house endorsed a new bill that has since been passed by the House of Representatives, and is currently being debated in the Senate. The bill would provide free coronavirus testing to anyone whose doctor says needs one, increase paid sick leave, extend unemployment benefits to furloughed workers, and increase funding for state Medicaid programs. The Senate is expected to quickly pass the bill.
  • Additionally, Treasury Secretary Steven Mnuchin is expected to ask congress for an additional stimulus package of $850 billion, that would include measures like an airline bailout, payroll tax cut, and a delay in tax deadlines. 

HOT READS

Markets

  • Fed Takes Emergency Steps as Virus Pushes Economy Toward Recession (WSJ)
  • Fed Deploys Its Full Arsenal, but It Still Has Some Tools (WSJ)
  • Mnuchin to Ask Congress for $850 Billion Virus Stimulus Package (Bloomberg)

Investing

  • Stocks Are in Chaos. Control the One Thing you Can (Zweig)
  • The Historic Sell-Off & a Game of Expectations (AWOCS)
  • What Happens After The Stock Market Falls (Irrelevant Investor)

Other

  • Why Outbreaks Like Coronavirus Spread Exponentially, and How To “Flatten the Curve” (Washington Post)
  • Coronavirus Social Distancing Forces Painful Choices On Small Businesses (WSJ)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

Personal Finances: Focusing on What You Can Control + Financial Market Update + 3.31.2020

Perspective on a Large One-Day Market Decline + Financial Market Update + 3.10.2020

FINANCIAL MARKET UPDATE 3.10.2020

STORY OF THE WEEK

PERSPECTIVE ON A LARGE ONE-DAY MARKET DECLINE

To say the stock market had a rough start to the week would be an understatement. Newsflow related to the coronavirus continued to deteriorate over the weekend, and Saudi Arabia’s recent decision to cut oil prices added to market stress (see Week in Review section below). Nobody knows how these events will transpire, and market hates uncertainty. As a result, stocks accelerated lower on Monday.

How much lower? See the front page headline of just about any major financial publication following the closing bell:

  • Stocks Fall More Than 7% in Dow’s Worst Day Since 2008 (Wall Street Journal)
  • Dow Tumbles More than 2,000 points, marks worst day since 2008 as coronavirus fears rock stocks (Market Watch)
  • Dow Sinks 2,000 points in worst day since 2008, S&P 500 drops more than 7% (CNBC)

As it turns out, it was the largest single day drop for U.S. stocks since the Financial Crisis. Associating Monday’s market action with the experience of 2008 is sure to resurrect some uncomfortable memories for investors who experienced it. This is not a coincidence. The anxiety generated by sensational headlines and references to past crises keeps readers engaged. News outlets need eyeballs to attract advertising dollars, and fear sells.

It’s not enough for the media to tell you how scary things are. To really deliver that visceral feeling of fear, they have to show you. Queue the photo of the random agonized NYSE trader. How can you not be scared about your investments? This guy is a pro, literally on the floor of the exchange. He is feeling it (or maybe they just caught him mid sneeze?). Finish it off with: #Stocks Plunge, #Fear, #Coronavirus, #WAR. Done. Print it.

Source: CNBC

At the risk of vilifying the media too much, know that there is nothing wrong with staying abreast of what is happening in the market. In-light of recent events, it is also perfectly normal to be feeling uncomfortable. The critical challenge is to not let short-term news flow (noise) knock you off of your long-term plan.

The chart below adds a little more perspective to Monday’ move. Of the 20,000+ trading days since the late 1920s, yesterday’s decline ranked as the 19th largest. Despite this large drop, investors should be prepared for the possibility that we have not yet seen the bottom. On several occasions a large decline in the chart below was within a few days or weeks of another. It’s entirely possible we could add another day (or more) to the list before calm returns. It is ok if that happens.

Source: CNBC

The biggest take-away from the chart is that there have been 18 days that were worse than Monday. Some of them were significantly worse. The market has recovered after every one of them. Despite all of the past outbreaks, scandals, natural disasters, nuclear disasters, wars, terrorist attacks, depressions, asset bubbles, and financial market collapses, the market has recovered and continued to grow. Just a few weeks ago, stocks were at all-time highs. The market will recover from this bout of volatility too, we just don’t know when. In the meantime, the best thing an investor can do is stick to their plan.

WEEK IN REVIEW

  • The decline in oil prices has accelerated, with the U.S. oil benchmark declining 24.6% yesterday from Friday’s levels. The sharp drop follows the failure of Saudi Arabia and Russia to agree to further production cuts last Friday. Instead, Saudi Arabia announced price cuts and a planned increase in production in order to increase its market share. This comes at a time oil prices were already under pressure as fear related to the coronavirus has sapped energy demand. If oil prices persist at these low levels, there will likely be some defaults in the U.S. shale industry. This could also have knock-on effects for adjacent industries.
  • The market recouped some of yesterday’s losses on the news that the government may deploy some fiscal measures to combat the economic impact of the coronavirus. The WSJ reported that White House Officials are scheduled to meet with lawmakers today to discuss some potential fiscal measures, including a payroll-tax cut as well as help for hourly wage earners.
  • Despite escalating fear related to the coronavirus, recent economic data releases have generally been strong. Last Friday’s Job’s report showed the three months ending in February was the strongest three month period of job growth since 2016. Additionally, the Institute for Supply Management (ISM) published an update on service sector activity, which increased at the fastest pace in a year. The coronavirus is likely going to bring these figures down in the weeks and months ahead, but it is important to remember that coming into this the economy was likely growing at a solid pace.

HOT READS

Markets

  • Yes, Bonds Could Still Rally, Even with Yields Below 1% (Barron’s)
  • The U.S. economy’s service sector grew in February at fastest pace in a year, but angst over coronavirus grows (Market Watch)
  • Coronavirus Spread Could Halt Robust U.S. Job Gains (WSJ)

Investing

  • What Benjamin Graham Would Tell You to Do Now: Look in the Mirror (Zweig)
  • Don’t Panic! (Ritholtz)
  • The Market’s Crazy. Get Excited! (Morningstar)

Other

  • The Best Summary of How to Win Friends and Influence people (Farnam Street)
  • Don’t Jump to Conclusions When America’s Coronavirus Iceberg Emerges (WSJ)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

Personal Finances: Focusing on What You Can Control + Financial Market Update + 3.31.2020

Understand This About Volatility + Financial Market Update + 3.3.2020

FINANCIAL MARKET UPDATE 3.3.2020

STORY OF THE WEEK

UNDERSTAND THIS ABOUT VOLATILITY

After a string of seven consecutive down days, patient investors finally found some relief yesterday (3/2/20). The S&P 500 gained 4.6%, the largest single day rally since the volatile fourth quarter of 2018, recouping about a third of the recent decline. Many investors are wondering: where do we go from here?

It is impossible to know if the worst is behind us. The market is said to be rallying based on the expectation the Federal Reserve will further ease monetary policy. While this is usually considered a tailwind for stocks, it does nothing to address the concern that precipitated the market decline. Namely, the global response to the coronavirus has slowed economic activity.

On December 26, 2018 the S&P 500 gained 5.0%, and punctuated the end of what had been a roughly 20% decline in stocks. Could a similar pattern play out today? Maybe. In October 2008, the S&P 500 gained over 10% in a single day on several occasions. It then continued its steep decline for months thereafter.

If you plan to sell out of stocks to avoid a potential big loss, it is very possible you will end up avoiding a big gain instead. As the chart below shows, this can have a disastrous impact on performance. The market has returned 11.45% per year on average since 1990. If an investor missed out on the largest up day each year, their average return would decline to just 7.72%. If they missed the four best days of each year, their average return would be negative! Large up and down days in the market tend to cluster together, and there will not be a signal ahead of time to let investors know the coast is clear.

Source: Morningstar Direct. Stocks represented by the S&P 500 TR Index. Chart shows the average of calendar year returns from 1990-2019 using daily data, and eliminating the specified number of the highest return days. 

Only the future can tell whether yesterday’s large gain was the beginning of a full recovery, or just a temporary blip. As a result, investors should be emotionally prepared for the possibility that we have not yet seen the bottom of this decline. Generally speaking, the worst thing an investor can do is deviate from their long-term plan during the stress of short-term volatility. Like the many rocky periods before, we continue to believe that this too shall pass.

WEEK IN REVIEW

  • The Federal Reserve moved to cut its benchmark interest rate by 0.50% this morning. This marks the first time the Fed has A) changed the rate outside of a regularly schedule policy meeting, and B) changed the rate by an amount more than 0.25%, since 2008. The move was made in an attempt to insulate the economy from the fallout of the coronavirus, though experts are mixed on how much of an impact the cut will have. A move to cut rates by the next meeting was widely anticipated by the market. The new range for the benchmark federal funds rate is now 1.00-1.25%.
  • The Institute for Supply Management (ISM) published an update on the manufacturing sector yesterday. The ISM Manufacturing Index fell to 50.1 from 50.9, anything below 50 signals contracting activity. Prior to January, the index has been in contractionary territory for 6 months as manufacturers felt the impact of global trade disputes.
  • Later this week we will get an update from ISM on activity in the services sector. The services sector makes up a much larger portion of economic activity than manufacturing does. On Friday, the Bureau of Labor Statistics will publish its jobs report for February. The jobs report is one of the most closely watched economic releases each month.

HOT READS

Markets

  • Federal Reserve Cuts Interest Rates By Half Percentage Point (WSJ)
  • Trading App Robinhood Experiencing ‘Major Outage’ for a Second Day… (CNBC)
  • U.S> Manufacturers Slow to a Crawl as Coronavirus bottlenecks emerge, ISM shows (Market Watch)

Investing

Other

  • The Pros and Cons of Refinancing Now (WSJ)
  • The Cognitive Bias that Makes Us Panic About Coronavirus (Bloomberg)
  • How to Prepare for the Coronavirus like a pro (MIT Tech Review)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

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