We’d like to start off with some positive news, the whole country and economy is NOT shut down. Most people were at work today and can work from home if need be. China looks to be improving and we’re receiving guidance daily from our state and federal government on how to limit the spread of the Coronavirus.
In the 4th quarter of 2019, we moved our portfolios to a more defensive allocation as our research was saying the market was the most overbought in 80 years and due for a correction. We believe the Coronavirus would have caused stock market volatility regardless, but the fact that the market was so overvalued has amplified the recent drops. We are currently at stock prices not seen since 2018. It’s hard to fathom 2019’s impressive gains in the major US stock market indexes have been wiped out in just 1 month. With all of the news headlines and general panic we’ve seen in the stock market and the media as of late, we wanted to send out a quick update on what our game plan is moving forward.
Overall, we are trying to remain extremely diligent in managing our portfolios during this time of extreme volatility. We picked our least favorite stock market index currently, the Russell 2000, and are betting against it as a hedge. As of Monday’s massive drop, our Inverse (short) Russell 2000 fund is up over 45% since we added it to the portfolio earlier in the year and that has helped to offset market losses. Included in our stock selections are sectors we expect to continue to outperform, such as consumer staples, which includes many of the items people are currently scrambling for (like hand sanitizer, toilet paper, cleaning supplies), as well as healthcare, which is not laying off their labor force anytime soon! We feel we are positioned appropriately given the current circumstance and volatility.
In our most recent market commentary at the end of February, we suggested the Federal Reserve would likely cut interest rates in the very near-term and would possibly resort to more extreme measures if that proves to be ineffective. Well, it’s amazing how much can happen in just 2 weeks time! The Fed has since cut interest rates twice and begun a $700 billion quantitative easing program. The likes of which we have not seen since the 2008 financial crisis recovery.
So far the Federal Reserve action seems to have missed the mark as the stock market once again had a monumental drop to start the week. We believe the market will rally before the election because President Trump will do everything in his power to get re-elected. The market may get much worse, however, before it gets better. Depending on the progress of the current quarantine measures, President Trump may wait for the dust to settle on the Coronavirus hysteria to implement a potential payroll tax cut for the middle class. It would probably make sense to save some of the economic stimulus closer to the election to heighten its effect.
We are still patiently waiting for evidence that the worst is behind us, in which case we plan to buy in low and take our hedging strategies off. Overall, we strongly believe that in the short-term to intermediate term, the best move is to continue to be defensive and wait for the appropriate signals before we go long and fill up the portfolios with stocks again. Rest assured we are watching the markets every day and will move 100% into cash if we deem it necessary. We are working harder than ever to protect your money.
If you are a client of ours, we encourage you to go online to see your performance, but for the average client who is moderately invested, since the market peaked, our Moderate portfolio has outperformed the Dow Jones Industrial Average by 31%. Please share this information with your friends and family who do not have an advisor that manages their money daily like we do for you. There’s a chance this market will get worse before it gets better, so now is a good time to move to our management.
If you do have any questions about your investment portfolio, signing up for our 401(k) recommendation service, your taxes, or anything else in general, please give our office a call at (586) 226-2100. Feel free to forward this commentary to a friend, family member, or co-worker. If they would like to receive this commentary in the future, please send us an e-mail at firstname.lastname@example.org at your earliest convenience. 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, Ken, Jim, and Zach
Summit Financial Consulting
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. All dividends and distributions are reinvested and included in the performance. The S&P 500 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. 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. Past performance does not guarantee future results.