Stock Market – Up or Down Next?
What About Bonds?
Good Time to Plan
Last week most stock market indexes increased over 10%. The Dow was up 12.67%, the S&P 500 rose 12.10%, the Nasdaq Composite 10.59% and the Russell 2000 small cap index up 18.50%.
The S&P 500 all-time high was 3393, reached less than 2 months ago. The index closed last Friday @ 2789. To again reach the all-time high of 3393, the index needs to climb an additional 21.65%. The low for the year was on March 23rd, as the index fell to 2237.
So, is the stock market going straight up from here? In last week’s blog, dated April 6, 2020, I mentioned that I expect a lot of back and forth until we understand the process of how we move forward in reopening our economy. As the days go by, we’re hearing more and more speculation and predictions. The other large debate is – did we actually put in a bottom to the stock market? Wish I knew that answer with certainty!! I do not believe the stock markets are going straight up from here… even with the unprecedented & enormous support from our Federal Reserve and Fiscal stimulus plans being employed. Let’s face it, outside of Amazon, Food Suppliers, Delivery Services and the Health Care sector, economic activity is at snail speed. As Corporate America begins to report 1st quarter earnings beginning later this week, how can most companies actually provide guidance about the next quarter or the balance of 2020? At this point, NO one knows!
Our blog posted on March 23, listed some of the opportunities that existed. One opportunity was to consider rebalancing your portfolio. If you rebalanced around March 23rd, the additional equities purchased in your portfolio should have increased in value. Typically after you rebalance, you leave the allocation alone for a while as the recovery begins, to capture the upside potential. In this environment I don’t believe being overweight equites at this point makes a lot of sense unless your retirement is a distant thought. So if you did rebalance, perhaps reducing equities for a while makes sense here!
What About Bonds?!
The bond market is significantly larger in size than the stock market. Bonds typically are more secure than stocks, as they have priority if a company is being liquidated (such as in bankruptcy). Bonds typically pay a steady stream of income to the bond holder. Bonds come in various “flavors,” such as US Government, State Government, Mortgage, High Quality Corporate, Low Quality Corporate and others.
The bond market, other than US Government, has suffered a significant dislocation in pricing for a myriad of reasons which has negatively impacted portfolio performance.
Our Federal Reserve, when we’re in a crisis, has typically purchased US Government and Mortgage debt to support liquidity in bond trading and bond pricing. In addition to purchasing US Government and Mortgage debt, our Federal Reserve is now purchasing Corporate Debt, both High and Low Quality. For now, this should put some pricing support underneath these asset classes, however they are certainly not insulated from volatility.
Having experienced active management of the fixed income (bond) side of your portfolio has never been more important. I believe price dislocations will continue, however a good manager(s) should be able to capitalize by purchasing undervalued bonds that may yield significant benefit, as we come out of this crisis situation.
I fully believe we should always look for opportunity to improve ourselves and our situation, regardless of the situation. This is certainly a good time to think about your retirement income planning. Many people have been spending more money on discretionary items than previously planned. This is a great time to review your needs, listing them in 3 categories:
– Fixed Income (Expense) Needs
– Lifestyle (Discretionary) Wants
– Occasional Needs
For more information, please review the Retirement Income Planning page of the website.
Retirement Income Planning that is specific to your situation can greatly assist in how you should position your investment portfolio now and going forward.