Looking Forward to Less Bad
The markets are forward looking. You should be too.
What’s Baked In?
Unfortunately, the US medical system appears unprepared for a pandemic.
So we made a choice. And while we have collectively chosen the health of our fellow citizens over the health of the US economy, we are being punished for it. In shutting down the US economy (alongside the rest of the world), we are creating financial uncertainty on a personal, national and global scale.
As the global stock and bond markets are forward looking (leading indicators), they are attempting to “price in” the approximate economic damage being caused by our collective “hunkering down”. From an investment perspective, markets will continue to “reprice” based on a number of factors as market levels are the collective “best guess” of all participants…well in advance of the actual facts being known.
The investment markets price based on known and all anticipated information.
The good news: The financial crisis of 2008-2009 has given the US Treasury Department and Federal Reserve much of the experience and toolkit needed to keep markets functioning reasonably well. Somewhat behind the scenes but vital.
Where Do We Stand?
1. The initial market drop appears “in”. Mostly based on the fear (and likely reality) of future bad economic data. Big drop = a lot of bad news is priced in. The “markets” non-reaction to the largest jobless claims in history today supports this.
2. The government has supported the markets with liquidity. And a stimulus package is on the way… it appears. Clearly the market looks upon this favorably but is likely pricing it in. Please don’t fail us Congress.
3. Then it’s time for data, data and more data. Weekly jobless claims, consumer spending, national economic reports, inflation, sentiment, etc, etc… The markets will continue to reprice up (or down) if it thinks the unemployment news is better than (or, possibly, worse than) expected.
4. History tells us the markets/our investments will improve before the news does.
For now (if you have a good plan), we just need the news to be better than anticipated.
Dimensional Funds – US Equity Returns Following Sharp Downturns
From the NY Times – Can I Boost My Immune System
Economics from Vanguard – A sharp contraction, then an upswing
Please Note: Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.
It was approximately 16 months ago that we first discussed the coronavirus in these missives. At that time history was telling us that while viruses have a habit of forming frequently, rarely do they have effects on a global scale. Covid-19 is an outlier. ...
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