Coronavirus Anxiety Round Two
For the second month in a row, the re-surging Coronavirus, anxiety about the presidential election, combined with a lack of new stimulus measures pushed the stock market lower towards the end of the month. In October, The S&P 500 was negative -2.77%. (Source: https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC).
Because of the last two months, combined with the Coronavirus fueled shutdowns earlier in the year, the DOW is now negative year to date -7.14%, and that makes it an extraordinarily rough year for investment accounts. The DOW is very close to where it was in January of 2018, so almost three years of market performance have not amounted to much for the DOW. Our TD Ameritrade portfolios have performed much better because of our active, daily management approach. We encourage you to meet with us for a review meeting to discuss your individual performance during this difficult time.
The first two weeks of the month were positive, and we used that opportunity to sell high some of our stocks that we bought lower last month. Later in the month when we saw trouble brewing, we added a position that profits when the stock market declines, and that helped us partially offset the losses in the market. Long story short, our trading is helping. As a result, our Moderate portfolio was down 0.58% for the month, which is great outperformance compared to a 2.77% loss for the S&P 500. In the past two months, in a down market, we’ve outperformed the market by a margin of 5.27% in our Moderate portfolio. We understand no one is ever excited about losing money, but we have worked hard at limiting risk to keep losses as low as possible.
How Will The Election Effect The Markets?
While past performance does not necessarily predict future performance, during presidential elections in the past 70 years, on average the stock market has rallied to end the year after the election is over. This year, there is a good chance that congress will create a new stimulus program, possibly as soon as a week or two from now, regardless of who wins the election.
To predict the election results at this point is nearly impossible, because we learned in 2016 that you cannot trust the results of polling. As a result, we have prepared two separate plans: One for a Trump victory and one for a Biden victory. Our goal is to take advantage of the situation whoever wins, whether that means buying stocks in bulk, or potentially hedging against the stock market in case of a larger downturn. As we mentioned last month, we have already added hedges to the portfolio to potentially avoid losses, because we are not gamblers, we’re investors. We know both names on the ballot have a chance at victory. There is also a chance we won’t know after election night who is the victor because of mail in ballots, and we anticipate the market will not enjoy that uncertainty.
Increasing the complexity is what may happen in the Senate and House of Representatives, because a large swing to one party or the other will also affect the markets. Bottom line: We plan to do everything in our power to protect and grow your money in 2020, despite the coronavirus and the election. By reviewing your portfolio holdings at TD Ameritrade daily, we believe we have the potential to accomplish that goal. If there is a year end rally, like there has been for the past 70 years after a presidential election, we aim to take advantage of it, quickly.
If you have any questions about taxes, your individual investment portfolio, our 401(k) recommendation service, or anything else in general, please give our office a call at (586) 226-2100. Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or your overall financial situation, please give us a call so we can discuss it.
Thank you for your confidence and referrals!
Bob Wink, Ken Wink, Jim Wink and Zach Bachner
Interesting Points
Value stocks have outperformed growth stocks for six months after every presidential election since 1980. Source: -Marketwatch, October 12, 2020
Since 1972, the stock market has rallied from Election Day (or shortly thereafter) until the end of the year on 10 of 12 past such occasions, with an average gain of 7.2%. Source: -MarketWatch, August 18, 2020
In August, the value of the top five companies in the S&P 500- Apple, Microsoft, Amazon, Facebook, and Alphabet- was 9% greater than the total market cap of the bottom 300 companies in the index. Source: -Axios, February 7, 2020
Tesla helped bring battery costs down from over $600/kWh to about $150/kWh…but it needs to land at about $100/kWh to achieve what is referred to as “petroleum parity.” Source: -The Wall Street Journal, September 22, 2020
The fourth quarter is usually the best performing quarter for equities, being higher 79% of the time and on average, up 3.9%. Source: -Yahoo Finance, October 1, 2020
In 2006, a Subway franchise in Ireland applied for a refund on paid taxes, arguing that since its products include bread, a “staple food,” it should be exempt. The Irish Supreme Court decided against Subway because under a 1972 law, the sugar content in bread can’t account for more than 2% of the weight of the flour in the dough. In all of Subway’s bread options, sugar accounts for 10% of the flour’s weight, therefore it is a confectionary, not bread. Source: -NPR, October 1, 2020
Back in 1845, Election Day was designated as the Tuesday following the first Monday in November. At the time, officials calculated that farmers needed a day to get to the country seat to cast ballots but did not want to interfere with church on Sunday, so they chose Tuesday. Source: -History, December 2, 2019
Notes & Disclaimer: Stock market indices, like the S&P 500 Index, are unmanaged groups of securities considered to be representative of the stock market in general or subsets of the market, and their performance is not reflective of the performance of any specific investment. Investments cannot be made directly into an index. Historical returns data are calculated using data provided by sources deemed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, or correctness. This information is provided “AS IS” without any warranty of any kind. All historical returns data should be considered hypothetical. Past performance is no guarantee of future results.
This communication is only intended for recipients who reside in states where our agents are licensed to sell these products. Investment advisory services are offered through Summit Financial Consulting, LLC, an SEC registered investment advisor. Registration does not imply a certain level of skill or training. Summit Financial Consulting Investment Advisor Representatives do not render tax, legal, or accounting advice. Insurance products and services are offered through Summit Financial Consulting, LLC. Note: Please update Summit Financial Consulting, LLC, if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy. All guarantees are subject to the claims paying ability of the issuing insurance company. Past performance cannot predict future performance. It is not possible to invest directly in an index. The Sherman Group, LLC is not associated with Summit Financial Consulting, LLC in any way, other than a research sharing partnership. Back testing is more heavily scrutinized than any other type of investment analysis because it can be updated to take advantage of past data. The algorithms and trading signals that we receive from the Sherman Group, LLC were created using back testing with the goal of creating a sustainable research process. We have reviewed data from the entire 20 year period which was mostly back tested, and have also personally reviewed the live data for the past 5 years and feel comfortable with it, but we encourage you to meet with us and ask questions so you are fully informed on what we plan to do with your investment assets at TD Ameritrade. It is important to look at fees, taxable repercussions, and trading frequency when looking at a rate of return number. There is no perfect system or research feed, and Sherman Group, LLC has had both longer term and short-term periods where they lost money. Investing involves risk, and these portfolios are no exception.
Disclosures regarding our performance reporting: Because some clients are in the 10% tax bracket and others are in the 37% Federal tax bracket, we have decided to report performance before taxes. If you have a non-qualified account, please feel free to contact us to determine your individualized rate of return after tax. All of Summit’s performance is after our 1.25% advisory fee that is deducted monthly. Your fees may be higher or lower depending upon the amount of assets invested with our firm. Feel free to contact us to receive online access so you can see your personalized rate of return. The Aggregate bond index we use is ticker AGG, and all dividends and distributions earned are reinvested and included in the performance numbers. The S&P 500 index and Dow Jones index quoted above does not include dividends within the performance. If a holding within our portfolio does pay a dividend or other income, it is reinvested, so our performance does include dividends. This report has been prepared from data believed reliable, but no representation is made as to accuracy or completeness. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage commissions, reinvestment of dividends and other earnings or fund charges and because of this, especially if you are a brand new client that was invested in the middle of the month or if you made a deposit or withdrawal in the month, adviser’s clients may have had materially different results from the results portrayed in the performance numbers disclosed. This information is provided to you in combined form, solely for your convenience and ease of review and is not an offer or solicitation to buy or sell any securities. In order to verify that all account values and transactions are accurate, we encourage you to compare the information provided in our statement with the statement you receive directly from your custodian. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. The performance data in this report represents past performance and does not guarantee or imply future results. Current performance may be lower or higher than the performance data quoted in this report. Because we use bond funds and inverse funds as hedges, there will be months where we underperform the Dow Jones and the S&P 500 index, but also months where we will outperform. We do our best to manage stock market volatility, but anything is certainly possible.
The returns are calculated using a true daily time-weighted rate of return (“TWRR” as a primary performance return methodology). TWRR is the CFA Institutes Global Investment Performance Standards (“GIPS”) required calculation for managed accounts. TWRR provides a measure of how an account was managed regardless of the dollar value and is unaffected by external cash flows. TWRR is required in GIPS Guidelines for managed accounts for two primary reasons:
1. Impact of external flows on TWRR: Since an advisor typically does not control the timing or magnitude of investor cash flows, TWRR is deemed appropriate as it isolates performance regardless of the portfolio/account’s dollar value and external flows.
2. Comparison across portfolios and benchmarks: TWRR can be used to directly compare performance with other portfolio/accounts and is an appropriate metric to use when comparing portfolio/account performance to benchmarks.
Please update Summit Financial Consulting LLC if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy.