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Insights & Commentary

April 2020 Review & Outlook

Review

We are in unprecedented times as the Covid-19 virus has caused the majority of the world population to dramatically adjust their lives. We all have been impacted by the social distancing mandates in one way or another. World economies have been halted, resulting in the worst first quarter in the history of the markets. Declines from the record highs were close to 40% as the uncertainty caused massive panic selling. Fortunately, asset allocation worked it’s magic and our portfolios buffered losses and set us up to take advantage of reduced equity prices.

Outlook

I’ve stated many times before the market does not like uncertainty. I believe the market over the last 2 months supports some of that theory. There was so much uncertainty surrounding what this disease was going to do to the world, and for how long, panic selling ripped through stocks. However, in the last few weeks, there has been a roughly 20% rebound in the markets while much of the world is still on lock down. Corporate earnings have declined, and unemployment is heading toward record levels. Why? There are several reasons.

The US government has provided some certainty around the economic impact by providing an unprecedented level of stimulus. There is a tried and true mantra of “don’t fight the Fed”. The Federal Reserve has all but guaranteed they will throw whatever stimulus is needed to keep the economy afloat until we can get back to work.

There has also been some ease of worry surrounding the virus. The data suggests that the US may be at peak numbers for new cases and may start seeing a decline any day. In addition, there are many potential treatment drugs that are showing promise to both treat and potentially prevent Covid-19.

Although it feels great that markets have rebounded sharply, we are still not out of the woods and need to be flexible in our expectations. We have to remember the country is still not fully open for business. Until we are, and until there is a treatment for the virus, markets can still be fragile and volatile. It is our expectation we may see another test of the 2200 low on the S&P 500 but believe any significant pull back should be used to increase equity exposure.

In my notes to clients, I have consistently stressed the importance of asset allocation. We have buffered the losses and are positioned to take advantage of the situation.

Equities

Our current expectation is we may see increased volatility now that corporate earnings season is upon us. We will use any sharp decline to increase equity exposure in anticipation of a normalized market as early as the 4th quarter of 2020. However, as situations change around business re-openings and virus treatments, so to may our expectations for a normalized time frame.

Fixed Income

The bond market has been the star of the selloff, however, with yields at historic lows and bond prices at highs, we have opportunistically taken some exposure out of this area and will look to reallocate to areas that can provide a healthier yield.

Alternatives

At the beginning of the crisis, we took a small position in gold across our models for protection. As the world starts to normalize, we will look to exit this position and reallocate to undervalued areas.

As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties.

Jason M. Vavra, CPA, PFS

Email: jvavra@vcm-wealth.com Website: www.vcm-wealth.com Twitter: @VavCap

Disclaimer

The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of future results.

January 2019 Review & Outlook

Review

There was no Santa Claus rally to end the year as the S&P 500 ended down almost 14% for the 4th quarter of 2018 and the worst December since 1931. The significant decline appears to be more sentiment rather than fundamentally based. Investors fled stocks across the board as the fears of trade wars, government shut downs and Fed rate hikes outweighed the strong US economic and corporate earnings data. The quarter was on target to be the worst ever until the US Federal Reserve chair hinted at less rate hikes than expected in 2019. His comments prompted a strong rally the final few days of the year.

Outlook

The first quarter of 2019 could set the tone for the year. The concerns that led to the decline in the 4th quarter could get resolved and push the economic fundamentals either positive or negative. Resolutions, or lack-there-of, with regards to trade wars, government shut downs and Fed rate hikes could be the deciding factor on whether a recession is in the near future or the US economy continues on its strong run.

The most significant resolution may be a trade deal with China due to its effect on both the US and world economies. If a trade deal is reached, it would instantly alleviate much stress on both the corporate and investing worlds. Reduced, or no tariffs, would clarify corporate earnings which are currently uncertain for any company that does business overseas. I’ve discussed before how markets do not like uncertainty. Putting to rest the uncertainty surrounding tariffs and the underlying economic effects could result in a significant positive upswing for the stock markets.

As of today, the US government has been shut down for the past month. If it ended now, there will be only a slight negative effect on US GDP growth. If it lingers on, more US agencies close and we will begin to see a more significant effect on economic data.

The final piece is the US Federal Reserve. There was much debate over the past few months on whether Fed policy may push the US into recession as soon as the end of 2019. Many economists felt that with the lack of inflation, the Fed was raising rates too fast which would ultimately slam the breaks on economic growth. The Fed chair’s comments at the end of December positioned their approach to be less aggressive in 2019. If they rescind on that commentary and continue their aggressive posture, we may be pushed into recession sooner than expected.

Equities

Absent of any economic data changes, we believe the sell-off in the 4th quarter was unwarranted and created a significant opportunity to invest at discounted prices. With some extra cash on the side lines waiting for tax loss selling holding periods to expire, we eagerly anticipate taking advantage of lower prices for long term positions.

Fixed Income

With the Fed easing their stance on raising rates, intermediate term bond positions are looking slightly more attractive than the safety of lower duration bonds.

Alternatives

With inflation showing little to no signs, we are not looking at positions such as commodities to hedge against that worry at this time.

As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties.

Jason M. Vavra, CPA, PFS

Email: jvavra@vcm-wealth.com Website: www.vcm-wealth.com Twitter: @VavCap

Disclaimer

The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of future results. 

K

October 2018 Review & Outlook

Review

In the 3rd quarter of 2018, the S&P 500 had its best quarter since 2013. The index returned more than 7% for the quarter. The quarter saw a continuation of strong consumer retail sales and manufacturing data. Those positive data points, along with a robust employment environment and record corporate earnings, signify a healthy US economy. Inflation remained calm even with such strong momentum in the US economy. However, the US Federal Reserve raised rates for the 3rd time in 2018 bringing the federal funds rate from 2.00% to 2.25%.

Outlook

As fantastic as the 3rd quarter was, the same cannot be said so far for the 4th quarter. We are through a very disappointing first month which saw the S&P 500 retreat almost 7%. The decline was the worst month since September 2011. There are a few factors that led to the decline and areas to watch as we close out the year. Continue reading “October 2018 Review & Outlook”

July 2018 Review & Outlook

Review

The second quarter of 2018 was significantly more volatile than we have seen during the almost 10 year bull market we are currently experiencing. Markets seemed to move on a daily basis depending on the rhetoric surrounding the tariff situation between the US and the rest of the world. In an attempt to avoid volatility due to the trade disputes, investors found some safety in small cap stocks since earnings of large cap multi-nationals could be affected if there is an extended dispute. Fixed income experienced another rough quarter as interest rate rises have a negative effect on bond prices in general. Continue reading “July 2018 Review & Outlook”

January 2018 Review & Outlook

Review

2017 was a continuation of one of the longest equity bull markets in US history. The year ended with a return in the S&P 500 of 19.42%, which was one of the best years of this multi-year run. The fourth quarter of 2017 provided returns in the S&P 500 of 6% on the momentum provided by the corporate and individual tax reform. A rare combination of global economic growth, accommodative economic policies, record corporate earnings and tame inflation provided the recipe for a strong year for stocks and a bull run that continues to be one for the record books.

Internationally, economic recovery and growth continued and reflected in equity prices as foreign markets even tended to outperform the strong US markets. With the US recovery more mature than that internationally, especially the Eurozone, the trend is likely to continue. Continue reading “January 2018 Review & Outlook”

OCTOBER 2017 REVIEW & OUTLOOK

Review

The third quarter of 2017 was one for the record books with the S&P 500 posting its first positive September since 2013 and closing at a record high. In addition, the Dow posted its first consecutive 8 quarter positive streak in 20 years. A strong September pushed US markets higher on the heels of firmer global inflation readings, the hope for US tax cuts and a stronger US dollar. Continue reading “OCTOBER 2017 REVIEW & OUTLOOK”

May 2017 Review & Outlook

Now that tax season is behind us and Spring is in the air, let’s take a look at the first quarter of 2017 and the outlook going forward.

Review

US stock markets got off to a great start in 2017 as both corporate earnings and economic data continued to improve. However, March was more volatile as President Trump was unable to pass a new healthcare bill to repeal and replace Obamacare. The inability to pass a new healthcare bill decreased hopes of a tax plan that would reduce both corporate and personal tax rates and bolster spending and growth to the US economy. Despite the March volatility, US stock indexes were still able to produce impressive returns of around 6% for the quarter. Continue reading “May 2017 Review & Outlook”

January 2017 Review & Outlook

With the presidential inauguration behind us, it is now time to reflect on the past year and look forward to the outlook ahead.

Review

The volatility that was prevalent in the markets the first three quarters of 2016 transferred into volatility of emotions in the 4th quarter. The election night surprise of Donald Trump winning the presidential election had investment managers bracing for an immediate sharp reactionary selloff. At one point in the early hours of Wednesday morning, the S&P futures were down significantly. Thankfully as the news was digested, and regardless of personal opinions of President Trump, the US stock markets opened nearly flat. Continue reading “January 2017 Review & Outlook”

Review and Outlook – October 2016

Review

Continued volatility remained the main theme of the 3rd quarter. Although economic conditions in the U.S. seem to be stabilizing, questions surrounding international economies, interest rate hikes and the presidential election contributed to near daily fluctuations the markets have avoided during most of the current multi-year bull run. Continue reading “Review and Outlook – October 2016”