As the country reopens, the state of the nation, the recovery and the future feel as uncertain as ever. Amidst the social unrest arising from ongoing racial injustice and inequality, market uncertainty fueling continued volatility and concerns over a resurgence of Covid-19 cases, only one thing appears to be constant: the market will keep the party going as long as the Federal Reserve picks up the tab. This was never more apparent than yesterday with Dow Futures down nearly 750 points at the open followed by a nearly 1000 point rebound upon news that the Federal Reserve will now begin purchasing bonds in the secondary market.
Never before has news of a market on life support been met with an exuberance to "Buy".
With interest rates near zero, the world economy slowing and the virus continuing to spread at home and abroad, stocks are still rallying based nearly entirely on the expectation that the Federal Reserve will continue to backstop risk and reward speculation. Even as economic data is released, what would have previously been extremely negative indicators are being met with surges in buying as traders interpret negative news as "better than expected".
What does this mean for Investors?
The answer is it depends. As long-term investors, time in the market remains much more important than timing the market. How the maket will evolve over the next 6-36 months is truly impossible to predict. Never have we been in a situation where a deep recession was deemed as likely as a V-shaped recovery particularly during an election year. Reopening has already resulted in increased cases and we have yet to see the impact of a possible fall resurgence as we approach normalcy in daycares, schools, restaurants and public gatherings. Keeping these factors in mind, our approach will continue to be optimism with a large dose of caution.
What does this mean for your Portfolio?
Given the continued uncertainty, your portfolios remain in a defensive position with 30-50% equity exposure combined with fixed income, gold and cash reserves. As the market surges, the FOMO Effect (Fear Of Missing Out) becomes ever more difficult. However, it is times like this that require patience and discipline as we navigate the unknown.
As the end of 2Q20 approaches, I would like to speak directly with each of you to discuss your portfolio, answer questions and determine expectations for the remainder of the year.
Please click here to Schedule a 15-min Portfolio Review.