So Let's Recap:
1) Stock markets have completely decoupled from economic reality: Year to date the S&P 500 is down a mere 5.8% (as above).
Meanwhile, on the back of the Coronavirus / Covid-19 pandemic and lock-downs, Q2 economic growth in the US is expected (currently) to come in at -52%.
Longer-term, the most recent report from the (non-partisan) Congressional Budget Office does not see the economy even getting back to its Q4 2019 level by Q4 of 2021:
S&P 500 earnings, a function of economic activity are not expected to reach their Q3 2018 peak until well into 2022.
2) Not to be overly pessimistic, but the current and seemingly escalating civil unrest in the US does not seem to be a positive for the economy and that does not seem to be built in to economic forecasts at the moment.
3) If stock market risk, as a result of a lack of a fundamental reality for prices, is at levels that we have not seen since 2002 and the uncertainty is so palpable, real investors (stewards of wealth vs. gamblers) should be taking a good hard look at their asset allocation strategies (especially those who rely on their investments for cash flow and lifestyle expenses). We have already had a few clients want to adjust their equity / fixed income ratios and these are folks who do not panic easily.
4) The super confident optimists (I am a cautious optimist) and stock market cheerleaders will tell you that stock prices are looking past the current crisis / crises. I pose the question, how far past are we all supposed to look?
5) And if we look out far enough, does all the current fiscal and monetary stimulus become inflationary? or worse, stagflationary?
6) Let's not forget all the government debt (in Canada too) that has and is being accumulated. How will that be paid for? Central banks will try to keep interest rates down to keep the costs of the debt down, but without serious economic growth, government revenues will not cover it (let alone balance the budgets any time soon) without some significant tax increases. They are not talking about that yet.
I have to think that, with all this in mind, stock markets are getting way ahead of themselves and that the very stretched elastic band metaphor is now in play and by virtue of that volatility may once again rear its ugly head.
If you are prepared to live with 20-30% swings in your portfolio, stay the course. Otherwise, reflect on the reality vs. the myth.
Meanwhile, on the back of the Coronavirus / Covid-19 pandemic and lock-downs, Q2 economic growth in the US is expected (currently) to come in at -52%.
Longer-term, the most recent report from the (non-partisan) Congressional Budget Office does not see the economy even getting back to its Q4 2019 level by Q4 of 2021:
S&P 500 earnings, a function of economic activity are not expected to reach their Q3 2018 peak until well into 2022.
Interestingly, since those days of better earnings (Q3, 2018), the S&P 500 is still up by some 5% (over about 1.5 years that is an average annual of 3.33%), notwithstanding the earnings recession that has evolved since. Bonds have been the best performer but ouch on the REIT's and Preferred's:
3) If stock market risk, as a result of a lack of a fundamental reality for prices, is at levels that we have not seen since 2002 and the uncertainty is so palpable, real investors (stewards of wealth vs. gamblers) should be taking a good hard look at their asset allocation strategies (especially those who rely on their investments for cash flow and lifestyle expenses). We have already had a few clients want to adjust their equity / fixed income ratios and these are folks who do not panic easily.
4) The super confident optimists (I am a cautious optimist) and stock market cheerleaders will tell you that stock prices are looking past the current crisis / crises. I pose the question, how far past are we all supposed to look?
5) And if we look out far enough, does all the current fiscal and monetary stimulus become inflationary? or worse, stagflationary?
6) Let's not forget all the government debt (in Canada too) that has and is being accumulated. How will that be paid for? Central banks will try to keep interest rates down to keep the costs of the debt down, but without serious economic growth, government revenues will not cover it (let alone balance the budgets any time soon) without some significant tax increases. They are not talking about that yet.
I have to think that, with all this in mind, stock markets are getting way ahead of themselves and that the very stretched elastic band metaphor is now in play and by virtue of that volatility may once again rear its ugly head.
If you are prepared to live with 20-30% swings in your portfolio, stay the course. Otherwise, reflect on the reality vs. the myth.
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