How the Stock Market is Doing Amid the Pandemic

We’ve experienced significant spikes of volatility in the stock and bond markets to end January and now February as well. Typically, when we see big dips in the stock market, bonds begin to cover the slack and offset losses, which has not happened to start the year. We have not seen this type of volatility and extended selling in the stock and bond markets at the same time since last year as the global pandemic gained stream.

In the last week of February, the Nasdaq index lost 4.9% (Source:  https://news.yahoo.com/stock-market-news-live-updates-feb-26-2021-234900240.html). Because the areas of the market that have been hit the hardest recently are technology and growth stocks, which have been at the top of our performance and research list for months. We are paying very close attention to these developments. Periodically there are sector rotations in the market, where certain stocks stop outperforming and let new areas pick up the torch. For instance, value stocks have underperformed growth stocks for quite some time, and we may be experiencing a reversal from growth to value. We will be shifting our positions accordingly if our research confirms this to be true.  

How could the stimulus bill affect the stock market?

February is historically an underwhelming month for stocks. However, March, April, and May are typically good months for the stock market. We’ve seen how fast the market can move just in the last week. We feel confident these short-term losses can potentially be made up in reduced time. If we begin seeing selling below key levels and believe the market will continue heading down, we may decrease risk across the board.

 Factors that have the potential to rebound the markets

1. A $1.9 Trillion stimulus bill should be passed within the next 2-3 weeks. We believe that will help jump-start the economy and the stock market. We will see improvement as people have discretionary money to spend and invest. 
2. Many people contribute to IRAs in March and April because of tax time. This buying is often beneficial to the overall market. 
3. Today in the state of Michigan, there was only one death from Covid (Source: https://www.clickondetroit.com/health/2021/02/26/coronavirus-in-michigan-heres-what-to-know-feb-26-2021/#//). The vaccines appear to be reducing cases and deaths. This has the potential to re-open the economy as people begin to eat out, go on vacation, and generally spend more money. 
4. Corporate profits are calculated year over year. In the next three months, corporations will begin reporting their earnings for 2021 versus the Covid ravaged 2020 numbers. The improvements should be fantastic for Wall Street.
5. Demographics will continue to be a tailwind for the next 15-20 years, the same way the stock market roared up in the 1980s and 1990s.  Generation X is firmly in its peak spending years. The Millennial generation is entering its peak spending years.  When we study this hundred-year data, we find a country with a large portion of its population in its peak spending years. This is beneficial for the economy.  We believe this tailwind will aid the stock market in 2021 and the years to come. 

What does this mean for your investments?

Because of these optimistic points, we have not run for cover in our portfolios. We do not want to miss out on a surge upwards in the stock market if it is indeed on the way in the coming months.  However, if you’d like to discuss the positioning of your portfolio from a risk standpoint, please reach out.  If you’ve had any changes to your income, job status, 401K options, address, or any other financial changes, please contact us. We’ll continue to monitor your investments daily. We will do everything in our power to protect and grow your accounts.

Sincerely,

Bob, Ken, Jim, and Zach

An Introduction to Stock Rotation

We want to make our clients aware that we offer a higher-risk investment option called the Stock Rotation portfolio. TD Ameritrade does not charge commissions on individual stock transactions. We aim to take advantage of that potential. Each month, our research analyzes the S&P 500 to find the top 7 stocks heading up and have an excellent technical analysis pattern. In good times, this portfolio aims to be 100% invested in individual stocks. When our research is less optimistic, we will move to a less risky allocation. Overall, for clients that are hungry for the potential of more considerable gains, even if it’s a small allocation of your overall portfolio, this portfolio may be a good fit. If you’d like more information, please contact our office.

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.