June/July 2020 Market Update Video
Tom: Hi everyone and thanks for joining us today for another edition of CG Insights. We want to cover a few things today: 1) we’ve had a nice market rebound from March but is it here to stay? and 2) Has the market shifted and what does it mean? We mentioned in our last video that it wasn’t a good time to change your entire financial strategy, but rather adjust and make sure you’re in-line. It’s part of our process to do just that, especially during times of uncertainty and extreme volatility like we had this year.
Matt: Right, so as we mentioned stocks have come back but the dispersion is very large. Meaning the gap between the winners and losers is dramatic. For context, the difference between the best and worst performing stock in just the S&P 500 is 155% as of early June. Also look at the difference between the best performing sector Technology up ~8%, compared to Energy which is down ~30%, or a difference of 38%. You’re probably thinking: Why not buy the sectors that are down the most? The problem with that conventional approach is that some of those companies and sectors may never fully come back in our opinion. Now, we’re not doomsayers but the market tends to reward companies with better balance sheets, cash flows etc. and not those with poor fundamentals. The companies that were not growing, with poor financials have been exposed in a big way. There are certainly bargains out there still but you have to be careful. And if you haven’t taken a look at your investments lately to make sure they’re in-line, you’ll want to. A number of changes have been accelerated this year; technologically and how we live every day. More on that in a minute…
Tom: Let’s also recognize that this lockdown (for lack of a better term) has forced all of us to adapt. We’re all interacting more digitally, not shopping as much at malls or going out to eat! It’s obvious why some online retailers have grown while other brick and mortar shops are closing down. Now, we could argue that some stores had issues before COVID-19 but it’s important nonetheless. Before the crisis, 8 out of 10 companies were looking to increase their digital capabilities; with supply chains, online sales, operations and cloud services. With COVID-19, that trend has arguably accelerated. Going back to the sector performances this year, it’s clear why areas like tech and healthcare have moved up while others haven’t. You may not remember this stat from one of our last videos but the average technology company spends ~20% of revenue per year on Research and Development. That’s quadruple what many others are spending, with some large household names that haven’t invested much at all. It’s nothing new, this trend’s been going on for a while now, but we feel that it will accelerate!
Matt: A lot of damage has been done to the global economy and psyche amongst individuals and families. Many are unsure what a potential “new normal” will look like. We would agree that uncertainty is high, but you have to take a different tact with your financial strategy. For example, despite the changes in the marketplace, a balanced approach can weather storms much better than trying to bet or time the market’s moves. The buffers and backstops we incorporate have held up very well and performed above expectations in some cases. We’re not claiming that we called this virus but the market was arguably signaling in 2019 that it was a good time to readjust and shore up profits in some cases. So in times of stress, we don’t necessarily have to abandon investments that are down, in order to cover things like retirement income or other goals. Having a process, and systematically keeping a prudent investment balance is at the core of what we do. On the flip side, it’s also allowed for us to take advantage of the major changes over the past few months. If you’ve followed us in our videos you know that we believe the rate of changes is going up not down and you have to be nimble with your financial strategy because of that.
Tom: It’s an important time to revisit your financial strategy and make sure it’s in-line with your goals. Those of you who are clients of ours know this is a regular part of our process. Although the market has run up quicker than most expected, it doesn’t mean there aren’t opportunities out there. The level of cash is hitting new all-time highs, interest rates are near new all-time lows and governments across the world are more accommodative than ever! The Federal Reserve for example has taken major steps to shore up the markets, unprecedented in some cases. We think the market is anticipating a long term rebound in our economy and the reason it’s moving higher. High frequency data like hotel bookings, TSA traffic, rail car traffic and manufacturing are showing signs of life. We have a long way to go but data like these are why (in our opinion) the market is optimistic; and quite frankly, so are we. More than likely things will get bumpy again this year, especially with an elections season coming up. Given the turmoil we’ve gone through this year with the virus, social upheaval, the deepest (and quickest) recession maybe ever, and trade tensions with China, the stage is set for a very interesting political season.
Thank you for joining us today, and stay tuned for more CG Insights!
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