For the past couple of weeks, politicians throughout the US have been reducing the shelter in place and lock down restrictions. This past weekend was the beginning of Phase 2, re-opening in many counties in California. The process to get from complete lock down and forced business closures back to normal is far from over. However, the beginning to reopen the US is well received. The stock market, of course, knew this months ago as it began to rally on March 24 after plummeting 33% in the shortest time in history. The adage of “buy on the rumor and sell on the news” is again validated, although I do not recommend selling as the market has more to go.
Through Friday, the S&P 500 has recovered almost 75% of its decline since February 19 and down -8.53%.
Taking a longer perspective on market returns is that the S&P 500 is 17.83% above January 1, 2019 level. If the S&P 500 stopped its rally on Friday for the rest of the year, investors would have a two-year annualized return of 8.9%, which is way better than having parked your money in money market accounts and avoided all this volatility (something I am sure many investors wish they did back in March).
The point is to be invested in markets; there will always be volatility, but the rewards should be significantly superior to no-risk savings accounts. Despite never experienced before volatility this year, investors still have an excellent return for the past two years, albeit at serious emotional costs. For the past ten years, the S&P 500 has increased by 164% since 2010, averaging a 10.2% compounded return.
However, the stock market has more to go, way more. Monday’s positive news of businesses opening over the weekend around America, and encouraging vaccine testing, news from Moderna (MRDN) prompt institutional investors to rush in buy orders from floor traders that started working on Monday. The S&P 500 shot up 2.4% on Monday’s open and rallied all day and closed at its near day high up 3.15%.
The celebrated news is people may be getting their old jobs back and allowed to visit family, friends, and neighbors at local restaurants. In other words, being able to do what we always took for granted. Rachael in our office was so excited today to tell me that she worked out with friends this past weekend, something she may not have even mentioned months ago. After months of fasting from normal life experiences, people have a newfound appreciation for simple freedoms like going to the park, taking walks on trails, or traveling. We may need to wear masks, limit our hugs, and stand a few feet away from each other, but how exciting is it that we can do these things. Nothing like a short-term restriction to renew one’s value and respect for these freedoms.
What Does This Mean to Me?
The S&P 500 activity continues to indicate the US economy will be recovering, and the timing may be sooner than later. For those that followed our advice of holding through this unprecedented volatility, the reward has been a near recovery of account balances from the start of the year. We expect more volatility, but key indicators we are watching are the Volatility Index (VIX) now below 30 from its all-time high of 83. Also, 10-Year US Treasury Note yields closed Monday at 0.71%. A strong confirmation of markets in recovery are for the VIX to stay in the 20’s and for the 10-Year US Treasury Note to close above 1.0% (its previous record low yield). Monday had many strong performers and most importantly it wasn’t Apple, Facebook, and Netflix. It's companies that will most benefit people resuming their normal activities. Look at these Monday one day returns:
American Airlines 8.18%
Bank of America 6.95%
Boeing 12.87%
Chevron 5.33%
Chipotle Mexican Rstr 2.76%
Hilton Hotels 6.61%
Southwest Airlines 13.49%
Marriott Hotels 17.38%
Marathon Oil 8.38%
United Airlines 21.13%
Visa 4.30%
Exxon Oil 7.95%
Please call us if you have any questions about your account. We welcome the opportunity to answer any questions you have or provide guidance in navigating through these unusual times.
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