I imagine you are weary of the cumulative effects of the quarantine – the virus itself, the economic devastation and uncertainty, and the political infighting. Altogether, they’re enough to make us crazy. However, I am always optimistic and expect things will change for the better soon.
Economically, the Covid-19 virus and resulting lockdown have created both a supply shock (because people can’t work) and a demand shock (because normal consumption patterns have been destroyed). We are already feeling it in the economic numbers coming out and perhaps in our own personal financial situations. Our government and the Federal Reserve have both taken drastic steps to help lighten the shorter-term harmful financial effects for both the American people and the businesses that employ them.
As I’ve said before, the stock market is a leading indicator of the economy to come. We saw the market take an unprecedented and suddenly steep drop in the first quarter and then begin to recover rather quickly. I believe that the economy will follow the same path as the market … with a hard and painful recession followed by a quick and sharp reversal back towards the prosperity experienced before the virus arrived. While the equity market indices are far from returning to their previous highs, they have indeed turned around at a stunning and volatile pace.
During this time, because our charts are driven by the relationship between supply and demand, they have had us on defense, then reversed up to offense, back down to defense, and now yesterday to offense again. We have the ball now and must act accordingly. When we are on defense, the main goal is to preserve wealth, and we take profits and cut losses to raise cash. When we are on offense, like now, the goal is to accumulate wealth. Although CASH is still a strong asset class, it’s time to invest much of the excess cash we’ve been sitting on and take advantage of lower investment prices. If it looks like we will reverse back to defense then we will again take profits, cut losses, and raise cash to preserve wealth.
*IMPORTANT* In my last letter I encouraged those of you who participate in your company 401(k), 403(b), 457, and/or other employer retirement plans to allocate 20% – 30% to cash since we were on defense. At this time, I would recommend reducing that cash position to 10% – 15% and invest the remainder into one or more of the large cap GROWTH options in your plan. As before, I cannot make these moves for you in your employers’ plans but would be very happy to provide my specific investment allocation recommendations for your plan upon request.
We are pleased with the performance of our client portfolios during these unprecedented times and are confident that by following our chosen system of investment management, we will work to help our clients reach their financial goals and maintain their style of living. We have been hosting Zoom, Facetime, and phone meetings with our clients during this time. If you have any questions, concerns, or would like to request a performance review by virtual meeting, please call us at 828-274-7844.
