Won't Get Fooled Again?

With apologies to The Who.

Risk tolerance. 

If your investment portfolio dropped 20% or possibly more and you were feeling quite nauseous back on March 23, you may want to use this opportunity to take a quick look under the hood (ask your advisor to send you an updated portfolio return summary) and ask yourself if you can stand another bout of that?

If you can, read no further.

If you can't and are thinking about the big risk inherent in "re-opening" the global economy, then perhaps it is time to give it some thought.

I am hopeful, but only cautiously optimistic. Think about it, the economy suffered a vicious sudden stop. Pretty much everything shut-down. There is no switch-click that will just turn it back on again so that it resumes growth (which had already been slowing before the pandemic and lock-down took hold). This re-start will be gradual and fraught with the possibility of another sudden stop. 

Clearly, the mood of the consumer is going to be somewhat skeptical, for some time to come. The only thing that gets the above table anywhere close to normal is if testing and ultimately a vaccine is available for everyone. 

Stock markets, however, appear to have a different perspective. The S&P 500 is up close to 30% from the March 23 lows. Historically, that would be considered a couple of good years.

Let's once again look at the fundamentals: 

Earnings estimates are crashing and expected to continue to show negative growth into 2021:

 If stock prices are rising and earnings are tumbling, anyone want to take a wild guess as to what is happening to the ratio of prices to earnings?

Yup, spiking back to the February highs, higher in fact. Remember what happens next?

What this tells me is that risk is also spiking, as it did in January and February. If your portfolio has too much risk and your tolerance for it is not there, it's a good time to make some adjustments.

High Rock Private Clients remain underweight equity and overweight cash equivalents, unless of course you are a daring millennial (we do have some young folks as clients with very long time horizons) who is comfortable with the risk.

If you need cash flow for retirement purposes over the next few years, think long and hard.