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Astoria Strategic Wealth

Q2 2020 - Market Commentary

With multiple single-digit daily percentage moves in the financial markets, the volatility of this past quarter would have been considered extraordinary during any other period.  After historic volatility during the month of March, however, most investors would likely agree that this quarter has felt relatively benign.  The U.S. and international stock markets have resiliently increased over 15%, recovering an appreciable amount of their Q1 losses. In fact, most portfolios have shown a modest positive return when reviewed on a 1-year rolling basis. 

Given the whipsaw and news headlines, it would be reasonable to question if the stock market was, in fact, detached from reality.  Most economists polled, say, “Yes”, yet the degree of detachment, however, varies upon the commentator. Shocked? We bet not. Some considerations as to why:

  • There will always be disagreement on whether the market is appropriately valued – this disagreement is what drives the stock market (i.e. investors are always trying to determine the true value of a company).  Even prior to COVID-19, there was strong disagreement on whether the U.S. stock market was overvalued. 
  • The market has traditionally been a leading economic indicator.  This “forward-looking” component of the market took the stage in March when we saw a drop of 33% from February highs – way before any earnings data had been released.  So, the market perhaps had proactively discounted the projected drawdown.
  • Let us not forget that the sheer amount of fiscal and monetary stimulus cannot be overstated.  Two trillion dollars (yep, that’s right - $2T!) of fiscal stimulus combined with the Fed’s announcement that they would purchase as many bonds as needed (Quantitative Easing infinity) certainly has helped provide support for the recovery – at least for now. 
  • Remember also that the U.S. stock market only approximates the U.S. economy.  A whopping 91% of the U.S. Stock market’s value is represented by large corporations yet small businesses account for 45% of our Gross Domestic Product (GDP).  And almost half of U.S. employees are employed by small businesses! 

So, has the stock market fallen off its rocker?  No.  It’s “normal” and expected that there will be periods when today’s news headlines and the closing bell don’t seem to be talking to each other. 

But, hold onto your seats.  We, at least, anticipate that this level of volatility will continue for the foreseeable future.  Given the amount of data still being complied on the Covid effect, not to mention the election, we do not believe we are out of the woods yet.

              What does all this mean practically from an investment standpoint?  Strategically, by design, we do not make major moves based on market projections.  This has been a prudent strategy for many decades now and has reaffirmed itself during this most recent downturn.  We remained fully invested in our models throughout the downturn (which we know can feel difficult), yet, this approach is the very thing that ensures we’re able to participate in the ultimate recovery. 

So how did YOU feel during the last several months?  Checking your portfolio daily?  Closing a blind eye?  Feeling confident in your/our strategy?  Your response might help you decide if this is a good time to re-evaluate your risk tolerance.  If you were losing sleep and starting to look for quarters in the couch cushions, this may be a good time to analyze the pros and cons of de-risking your portfolio (e.g. tax costs, return needs, time horizon, effect on retirement projections, etc.). Some of the “fear” from the market downturns can simply come from not knowing the effect it will have on your goals.  Knowledge is power.

Lastly, the strongest defense against uncertainty is having the margin to adapt.  This includes having control of your daily finances and having an adequately funded emergency fund. 

If we can assist with any of the above, please don’t hesitate to reach out.   We wish you health and safety as we navigate Covid-19.