By Jason Lambert
The market was down about 15% this last week. Last week we saw jaw dropping volatility with swings that we haven’t seen since 1987. In addition, this week we saw the largest gain since 1933. We are talking in historical terms about the market. We have also seen record lows in interest rates. Last week the fed cut rates to 0% – 0.25% in an emergency rate cut. This didn’t have the same benefit you would typically expect from the market. The Fed stepped in as an emergency rate cut that further spooked the market. With many states now issuing “Stay Home” guidance we will continue to see the economic impact. This week we expect 7-digit unemployment numbers with massive layoffs coming in hospitality and retail. I have said for a long time that the backbone of this economy has been built on the US consumer. Now the base case scenario that we are assuming is the we are headed for a recession, if we are not already in one.
We have seen nonstop coverage of the virus. Any economic data we have been getting has been dismissed because it was backwards looking at the economy pre coronavirus. we are amid vary trying times. And it is times like this that have the potential to change our lives forever. People are starting to settle into the reality of working from home. Thankfully we live in a day and age where this is becoming attainable. We may see more shifts to employees working from home.
We believe the market has increased volatility for several reasons. The market is driven more and more by computer trading and as we see the market pass by invisible lines we see and uptick in the selling. We now have more people trading ETF’s that price in real time and systematically can sell across indexes and sectors. Then we have the largest event and it is the news cycle and fear. People are making emotional decisions in times like this and we continue to see emotional responses in the moment. The good news hear is that we expect for as violently as markets have sold off, we expect them to come back for the same reasons.
I would like to help focus your thoughts on this. Benjamin Graham, the father of financial analysis said, “investing isn’t about beating others at their game. It’s about controlling yourself at you own game.” In difficult times like this it is hard to see the silver lining. However, if you have money on the sideline, it may be a good time to start talking to someone and coming up with a plan for getting it back to work for you. it is always difficult to put money in when the market is down but that is exactly when you should be looking for opportunities to invest.
Having an advisor to help you craft a plan is central to your continued wealth creation. Does your plan still make sense? Are you on track for your goals? Are you letting yourself get caught up in all the media-stoked hysteria? Like Graham said, don’t worry about beating others; master your game and you will succeed. If your plan makes sense, stick to it. Historically, the stock market has returned an annual average of 10% before inflation, but you have to stay in to benefit.