Tuesday, September 29, 2020

Shaken and Stirred

Ask the CPF

Photo by Darcie Guerin

“You have power over your mind—not outside events. Realize this, and you will find strength.” ~ Marcus Aurelius, Roman Emperor and Philosopher

Question: The word unprecedented seems to have lost some of its meaning due to overuse these last few months. Can you provide perspective and insight on what’s taking place during these extraordinary times? 

Answer: It’s a challenge to describe the unparalleled and unique happenings these past months without running out of fresh adjectives. We’ve seen global pandemic, an economic slowdown in the U.S. and abroad, record job losses, geopolitical tensions and civil unrest. Each are extreme calamities on their own merit; yet when combined, the result is appalling. If your head is spinning, you’re not alone. 

The National Bureau of Economic Research (NBER) declared that the economy officially entered a recession in February. Normally, the NBER waits months before making such a proclamation, yet the magnitude of this decline in economic activity and staggering unemployment levels left no doubt of the pressure on the economy. The Federal Reserve and Congress responded quickly with monetary and fiscal intervention. The speed, precision and magnitude of these stimulus actions not only surprised markets, but it might have heightened expectations and driven optimism. With the positive slant and forecast, optimism is driving valuations higher, it’s as if we couldn’t imagine any additional positive or negative surprises, making us somewhat vulnerable in either direction. 

The NBER expects May retail sales and industrial reports released in June to show sharp rebounds as compared to severe weakness in April. Relaxed social distancing guidelines will increase economic activity and demand for employment as well as manufacturing hours. In fact, aggregate manufacturing fell 19.3% between February and April while showing an increase of 4.3% during May. Residential construction numbers have also shown improvement according to NBER. 

Based on what we’ve experienced, it is somewhat healthy, normal and even necessary to experience pullbacks after rebounds and gains. Fundamentals will likely need to catch up to prices following the enormous fiscal and monetary responses to the recent litany of catastrophes. Jobs and productivity are known to support and propel the economy and we can’t print jobs; it will take time and new evolving skill sets to provide ongoing and sustainable economic support. For these reasons, we continue to closely monitor statistics and data rather than solely relying on a narrative.

To summarize, the equity markets and the global economy have been both shaken and stirred. Last week, we saw a sustained rally evaporate in just a few hours. The gross domestic product continues to decline, and increased COVID-19 testing capabilities show the incidence of cases continuing to rise in key areas. The uncertainty surrounding the availability of a potential vaccine compounds vagueness and ambiguity contributing to already low investor sentiment. Raymond James Chief Investment Officer Larry Adam said, “Elevated levels of optimism and great expectations of a strong economic and earnings rebound are being met with a dose of reality. However, we remain optimistic over the longer term.” On the geopolitical front, renewed tensions with China reignite concern over trade and future supply chains. Global interest rates remain near zero, or in some cases below zero, and liquidity levels make it hard to imagine anything beyond this scenario. And let’s not forget that there is an election several months from now that will influence policy and tax structure going forward. On the plus side, therapeutic research and advancement toward a vaccine are a potential catalyst for stability. 

Knowledge is power. We’ve weathered volatility before. The goal here is to provide perspective on what’s happening in the US and abroad. Understanding your financial plan with your unique long-term goals in mind during these unprecedented and exceptional times is as important as ever. Stay focused and invest accordingly. 

Past performance may not be indicative of future results. There is no assurance these trends will continue. All investments are subject to risk. The opinions expressed are those of the writer as of June 14, 2020, but not necessarily those of Raymond James and Associates, and subject to change at any time. There is no assurance that any investment strategy will be successful. Asset allocation does not guarantee a profit nor protect against loss. Information obtained from outside sources is believed to be reliable but cannot be guaranteed as such. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email darcie.guerin@raymondjames.com. Website: www.raymondjames.com/Darcie.

 

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