More and more clients are telling me they have abandoned their daily time with favorite media sources due to the continual feed of disheartening news. What is going on around this country is disappointing; that is challenging core principles we were taught in younger years and adopted as we grew older. Emotionally it is hard to be optimistic investing into an economy that is in the throes of riots, protests, civil unrest compounded with the threat that companies may be closed again and some possibly for their last time. Unfortunately, emotions have rarely served investors well. During March and April, we received many calls that separated into two categories: sell and buy. Understandably, it was a hard time to remain invested as the S&P 500 plummeted 34% in 34 days. The fastest decline in stock market history. Then there were those that called to add to their accounts and buy. Again, understandable as America has a 100% success record of recovering from crises. Both achieved their goals of either limiting their losses and account volatility or capitalizing on a buying opportunity.
American businesses are limping into the summer months as major media outlets relentlessly report the growing infection rate of Covid-19 encouraging politicians to close their cities while neglecting to report rapidly declining mortality rates and hospitalization. Analysts are evaluating the potential impact on business operations with new rounds of restrictions by politicians and if they will recover after months of closures. Will their customers return or remain at home due to either fear of the virus or frustrations with masks ordinances?
Surprisingly, institutional investors remain optimistic based on the first days of July with five positives of the last six trading days for the S&P 500 ending up 0.95% for the third quarter and NASDAQ ending yesterday 1.86% for the quarter.
During times of confusing data and emotions, our success in navigating our model portfolios includes focusing on the actions of the most informed and affluent investors. These are the institutional managers of multi-billion dollar equity and bond funds and portfolios. These equity managers are the heavyweights and dominate the market with their influence. When they want to reduce risk, they either do it slowly over time as to not tip their hand on their intentions. In doing so, they weaken market trends with two steps down to one step up activity. If they are really worried, they flood the market with their sell orders like in March that plummets prices as they try to unload their stock holdings faster than their peers. The opposite is also true when they see buying opportunities, they will increase their buy orders slowly or in large volume driving stock prices up. The institutional manager and their team of analysts typically have the most accurate and timely information about the economy, consumers, and corporate activity. They can act very quickly with their multi-million-dollar trading teams and equipment. In short, we don’t need to know economic data, we need to watch the technical indicators that reveal what institutional managers are doing and act accordingly. So far, these managers are not showing concern.
What Does This Mean to Me?
With all the disturbing news around the country with our economy still in a recession, it is encouraging to see favorable stock market activity. We maintain our allocations with our model portfolios after re-balancing several times this year. We evaluate our holdings every day and will be extremely focused on economic news and technical indicators these next five months leading up to the election. We anticipate the stock market to be influenced by headlines and election predictions. The stock market favors conservative fiscal & monetary policy, low taxes, free enterprise, low inflation, and democracy. If the stock market influenced by institutional investors projects an election outcome that is good for the economy and business, these managers will add stocks to their portfolios, and the stock market will continue to trade positively. If not, the opposite will happen.
Let us know if you have any questions about your account or financial goals. Like entering a sporting event with your team, you want a game plan and coach that will enable you to win. We place a high priority on financial planning, charting out a plan for you to achieve your goals and execution. If you do not have a clear understanding of your goals and how to achieve them, now is the time to figure it out. No team can expect to win consistently without defining their strategy and developing their skills to accomplish their goals. Give us a call. We are here to help.
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