Tag: volatility

Understanding the Market Correction – 2023

Written by Minich MacGregor Wealth Management on November 2, 2023. Posted in Featured, News, Posts.

You probably saw the news: On October 27, the S&P 500 officially slid into a market correction.

A correction is when the markets decline 10% or more from a recent peak. In the S&P’s case, the “recent peak” was on July 31, when the index topped out at 4,588.¹ On Friday, the index closed at 4,117 – a drop of 10.2%.¹

Market corrections are never fun, and there’s no way to know for sure how long one will last. Historically, the average correction lasts for around four months, with the S&P 500 dipping around 13% before recovering.² Of course, this is just the average. Some corrections worsen and turn into bear markets. Others last barely longer than the time it took for us to write this message. (On Monday, October 30, for example, the S&P actually rose 1.2% and exited correction territory.³) Either way, corrections are not something to fear, but to understand – so that we can come through it stronger and healthier than before.

To do that, we must understand why the markets have been sliding since July 31. We use the word “slide” because that’s exactly what this correction has been. Not a sharp, sudden drop, but a gradual slide, like the bumpy ones you see on a playground that rise and fall on the way to the ground. While the S&P 500 dropped “at least 2% in a day on more than 20 occasions” in 2022, that’s only happened once in 2023, all the way back in February.⁴

At first glance, it may seem a little puzzling that the markets have been sliding at all. Do you remember how the markets surged during the first seven months of the year? When 2023 kicked off, we were still coming to terms with stubborn inflation and rising interest rates. Many economists predicted higher rates would lead to a recession. But that didn’t happen. The economy continued to grow. The labor market added jobs. Inflation cooled off. As a result, many investors got excited, thinking maybe the Federal Reserve would stop hiking rates…or even start bringing rates down.

Fast forward to today. The economy continues to be healthy, having grown an impressive 4.9% in the third quarter.⁵ Inflation is significantly lower than where it was a year ago. (In October of 2022, the inflation rate was 7.7%; as of this writing, that number is 3.7%.⁶) And the unemployment rate is holding steady at 3.8%.⁷ But the markets move based either on excitement for the future, or fear of it – and these cheery numbers no longer generate the level of excitement they did earlier in the year.

The reason is there are simply too many storm clouds obscuring the sunshine. While inflation is much lower than last year, prices have ticked up slightly in recent months. (We mentioned the inflation rate was 3.7% in September; it was 3.0% in June.⁶) As a result, investors are now expecting the Federal Reserve to keep interest rates higher for longer. Seeking to take advantage of this, many investors have moved over to U.S. Treasury bonds, driving the yield on 10-year bonds to its highest level in 16 years. Since bonds are often seen as less volatile than stocks, when investors feel they can get a decent return with less volatility, they tend to move money out of the stock market and into the bond market.

As impressive as Q3 was for the economy, there are cloudy skies here, too. This growth was largely driven by consumer spending – but how long consumers can continue to spend is an open question. Some economists have noted that Americans’ after-tax income decreased by 1% over the summer, and the savings rate fell from 5.2% to 3.8%, too.⁵ Mortgage rates are near 8%, a 23-year high.⁸ Meanwhile, home sales are at a 13-year low.⁹ All this suggests that the Fed’s rate hikes, while cooling off inflation, have been cooling parts of the economy, too.

Couple all this with violence in the Middle East, political turmoil in Congress, and a potential government shutdown later in November, and you can see the problem. Despite the strong economy, investors just aren’t seeing a good reason to put more money into the stock market…but lots of reasons to think that taking money out might be the prudent thing to do. It’s not a market panic; it’s a market malaise.

So, what does this all mean for us?

We mentioned how the markets operate based on excitement for the future, or fear of it. But that’s not how we operate. We know that, while corrections are common and often temporary, they can worsen into bear markets. Furthermore, any decline can have a significant impact on your portfolio, and by extension, your financial goals. So, while our team doesn’t believe in panicking whenever a correction hits, neither do we believe in simply standing still. Instead, we’ll continue to analyze how both the overall market – and the various sectors within the market – are trending. We have put in place a series of rules that determine at what point in a trend we decide to buy, and when we decide to sell. This enables us to switch between offense and defense at any time. This, we feel, is the best way to keep you moving forward to your financial goals when the roads are good…and the best way to prevent you from backsliding when they’re bad.

In the meantime, our advice is to enjoy the holiday season! Our team will continue to focus on investments, so our clients can focus on why they invest: To create happy memories and live life to the fullest with their loved ones. Happy Holidays!

SOURCES:

¹ “S&P 500,” St. Louis Fed, https://fred.stlouisfed.org/series/SP500

² “Correction,” Investopedia, https://www.investopedia.com/terms/c/correction.asp

³ “Stocks rebound to start week,” CNBC, https://www.cnbc.com/2023/10/29/stock-market-today-live-updates.html

⁴ “S&P falls into correction,” Financial Times, https://www.ft.com/content/839d42e1-53ce-4f24-8b22-342ab761c0e4

⁵ “U.S. Economy Grew a Strong 4.9%,” The Wall Street Journal, https://www.wsj.com/economy/us-gdp-economy-third-quarter-f247fa45

⁶ “United States Inflation Rate,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi

⁷ “The Employment Situation – September 2023,” U.S. Bureau of Labor Statistics, https://www.bls.gov/news.release/pdf/empsit.pdf

⁸ “30-Year Fixed Rate Mortgage Average,” St. Louis Fed, https://fred.stlouisfed.org/series/MORTGAGE30US

⁹ “America’s frozen housing market,” CNN Business, https://www.cnn.com/2023/10/19/homes/existing-home-sales-september/index.html

Investing Like Water

Written by Minich MacGregor Wealth Management on October 4, 2022. Posted in Uncategorized.

Lately we’ve been thinking about water. There are water problems everywhere – too much in the southeast and not enough out west. Our thoughts are with you.

We know thinking about water might seem like an odd thing for financial professionals to think about. Especially during times like these, with interest rates on the rise, inflation remaining stubbornly high, and volatility dominating the markets.

But, as investors, this is exactly the time to think about water.

To illustrate what we mean, consider this quote, usually attributed to the great Chinese philosopher, Lao Tzu:

“Consider that nothing is softer or more flexible than water, yet nothing can resist it.”

Even in the best of times, many investors are rigid and inflexible in their approach. It’s in the hardest of times that this rigidity comes back to bite them. For instance, many investors take the approach that they must stay invested all the time. Since the whole point of investing is to grow your money, they are constantly in growth mode. Though, investors like this simply fear missing out on future growth. As a result, they are constantly climbing towards the top of the mountain, even when the cliff becomes straight and sheer, without a single ledge or toehold to cling to.

As of this writing (9/30/2022), the S&P 500 is down 24.8% for the year and the NASDAQ is down 32.4%. For the first time since 2009, the first three quarters of 2022 have all been negative. It’s been a very challenging year!

Perhaps that slide will continue, perhaps it won’t. We don’t know; no one does. What we do know is that, when the cliff gets sheer, it can be a long drop down to the bottom.

Other investors, perhaps burned by this approach, become inflexible in another way. They sit out the markets permanently, or invest only in bonds, or some other approach that makes them feel “safe”. Better to risk gaining nothing than to risk losing anything. As a result, these investors never move at all. They simply stay where they are…even if where they are isn’t where they want to be.

Despite the volatility we’ve seen this year, the S&P 500 is up nearly 60% since March of 2020.¹ Perhaps that number will go up, perhaps it won’t. We don’t know; no one does. What we do know is that we’d hate to miss out on that kind of journey.

Now consider water.

Have you ever seen a major river from above? If so, you’ll have seen how it always takes the easiest course. Sometimes it flows straight; sometimes it bends and curves back on itself. Sometimes it flows fast and strong; sometimes, it barely moves at all. It cannot fight against gravity, so it never tries to go uphill. But it always keeps moving, from source to destination.

When you think about it, our entire investment philosophy here at Minich MacGregor Wealth Management is based on emulating water. As you know, we use a combination of technical and fundamental analysis to help us find and follow market trends. Sometimes, the markets trend up. Sometimes, the markets trend down. Sometimes, the trend is short; other times, it’s long. Sometimes, different sectors of the markets will trend in different directions. (This is why we don’t try to invest in everything, but choose our investments based on their relative strength compared to other, similar investments.)

Whichever way the trend goes, though, we don’t fight it. Like water and gravity, we know that you can’t fight it. Instead, we adapt to it. When the trend is down, we may move into cash to protect against undue risk. When the trend is up, we do the opposite. Sometimes, this shift may occur month to month or even week to week. But we are always on the lookout for opportunities to invest your money where it will do the most good. Like water, we try to follow the path of least resistance, adapting our approach to the lay of the land. Sometimes we will be in growth mode; other times we will be defensive. Just as water will speed up or slow down, flow straight or curve backward, sometimes we will, too.

Experience has convinced us that this approach – being flexible and adaptable – is the surest way to your destination. By not trying to constantly scale the cliff, we do not risk the fall. And by not being afraid to move, we do not risk forever staying in one place. By being like water, we stay soft, flexible…and irresistible.

The reason we’re telling you all this, is because investors have so much noise to contend with right now. On Tuesday, September 13 alone, the news came out that the inflation rate for August was at 8.3%, higher than many experts hoped for.² This means it’s even more likely that the Fed will continue to raise interest rates, which is hardly welcome news for most companies. The result? The Dow fell over 1100 points.² For rigid, inflexible investors, numbers like this represent a major obstacle. Some will crash into it in their attempts to plow through. Others won’t even bother trying. For us, however, it’s merely another data point.

Over the coming weeks, it’s possible we’ll have more days like September 13. We don’t know how long this volatility will continue; no one does. Either way, our strategy will help us get around it. So, while the headlines might seem scary, we hope you take comfort in the fact that we’ll continue adapting to changing market trends with great flexibility, all based on your needs and goals.

We’ll be like water.

¹ “S&P 500 Historical Data,” Investing.com, https://www.investing.com/indices/us-spx-500-historical-data

² “Stocks Fall on Hotter-Than-Expected Inflation Data,” The Wall Street Journal, https://www.wsj.com/articles/global-stocks-markets-dow-update-09-13-2022-11663065625

Is the Sky Falling (again)?

Written by Minich MacGregor Wealth Management on July 23, 2021. Posted in Uncategorized.

There’s a lot going on in the world right now.

We thought this message was going to be about the $3.5 trillion budget deal or what to do with any child tax credits that may be heading your way.

But then global markets jolted on fears of new viral variants.

Is the sky actually falling?

Could a big correction happen?

After hitting record highs in previous days, markets tumbled Monday, sending the Dow 700+ points lower.¹

Why?

Mostly fears of a COVID-19 resurgence caused by the delta variant that could derail the economic recovery.

Case numbers are rising globally, even in countries with high vaccination rates, and the surge could lead to a return to travel restrictions and business closures.²

Could these market jitters cause a 10%+ correction?

Absolutely.

Should we panic and freak out?

Definitely not.

Here are a couple of reasons why:

Summer months can bring higher volatility, perhaps because of lower trading volume, making bad news shake the market harder.³

We’ve had a pretty long winning streak, and corrections are part and parcel of a healthy market, especially when we’re near all-time highs.

New variants and higher case counts are a threat. However, vaccination rates are continuing to rise, and experts don’t think that we’ll see the devastating health outcomes we saw last year.⁴

Could the delta variant cause the economy to slow down?

It’s hard to say at this point. The rosy projections about the economy have been based on a swift return to normal from the shortest recession in history.⁵

If surging case counts cause a resumption of business and travel limits, we could definitely see a hit, especially in recovery-dependent industries like airlines, cruises, and hotels.

Supply chain issues are still causing materials shortages, creating delivery delays of goods, and potentially triggering slowdowns in industries such as building and construction.⁶

However, consumer spending is still very strong and the economy is in way better shape than it was last year.⁷

Bottom line: we could see some economic complications due to the delta variant and we’re likely to see more market volatility ahead, especially if economic data disappoints.

We’re keeping an eagle eye on the trends and will be adjusting strategies for our clients if we feel they need to be changed.

Have questions? Please reach out. We’re always here to help.

P.S. A massive $3.5 trillion budget deal is working its way through Congress.⁸ It’s got a lot of moving parts that may affect taxes, Medicare, and much more. We’ll reach out when we know more about how it’s likely to shake out.

¹https://www.cnbc.com/2021/07/18/stock-market-futures-open-to-close-news.html
²https://www.reuters.com/business/healthcare-pharmaceuticals/delta-covid-variant-now-dominant-worldwide-drives-surge-us-deaths-officials-2021-07-16/
³https://www.nasdaq.com/articles/volatility-gauge-suggests-tactical-trading-during-summer-doldrums-2021-07-19
⁴https://www.nature.com/articles/d41586-021-01696-3
⁵https://www.cnbc.com/2021/07/19/its-official-the-covid-recession-lasted-just-two-months-the-shortest-in-us-history.html
⁶https://www.washingtonpost.com/us-policy/2021/07/20/biden-delta-coronavirus-economy/
⁷https://www.reuters.com/business/finance/us-retail-sales-unexpectedly-rise-june-2021-07-16/
⁸https://www.cnbc.com/2021/07/14/democrats-3point5-trillion-budget-package-funds-family-programs-clean-energy-medicare-expansion.html

2021 Areas of Uncertainty -> Volatility

Written by Minich MacGregor Wealth Management on May 24, 2021. Posted in Minich MacGregor Missive, News.

Everyone knows that April showers bring May flowers. But this year, the saying could be, April tranquility brings May volatility.

Okay, maybe that saying won’t catch on. But still: Up one day, down the next, flat overall — this has been the state of the markets for the last few weeks. The fancy word for this is consolidation. The markets have been on a tear this past year, and now investors are consolidating their gains, waiting to see what happens next. Think of it as a plane in a holding pattern, circling the runway while it waits for a good time to land.

Why this new volatility in the markets? That’s the question many clients have been asking us. Well, volatility is always a product of uncertainty, and there are several areas of uncertainty that investors are dealing with right now. We’ll address a few…

The first area is inflation.

On Wednesday, May 12, most Americans probably woke up and read the news that Ellen DeGeneres was canceling her show. Or maybe they checked the latest sports scores. We enjoy reading this stuff as much as the next person, but, as financial advisors, our morning was spent reading something else: a news release from the Bureau of Labor Statistics revealing the Consumer Price Index for the month of April.

Here’s how it starts:

“The Consumer Price Index for All Urban Consumers increased 0.8% in April on a seasonally adjusted basis after rising 0.6% in March, the US Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2% for seasonal adjustment. This is the largest 12-month increase…since September 2008.”¹

Riveting stuff? Maybe not – but there’s some important information to be found in that paragraph. Here’s what it says in plain English: Inflation is on the rise.

The fact inflation is rising is not a surprise, nor is the reason for it hard to understand. With the worst of the pandemic seemingly behind us, the economy is opening up in a big way. More and more people are going out to eat, visiting theme parks, traveling on airplanes, buying cars, improving their homes, etc. In other words, people are demanding more goods and services.

As we know from the Law of Supply and Demand, when the demand for things outpaces supply, prices go up. With more people are vaccinated, and the CDC recently loosening their mask recommendations, demand has risen sharply over the past few months.

Now, these conditions are all good for economic growth. But for the stock market, there are two issues. The first issue is that this economic growth was largely priced into the markets months ago. Remember, stock market prices reflect what investors anticipate will happen tomorrow more than what’s happening today. Investors expected the economy to grow, so they plowed more money into stocks. Now, the growth is happening, but it’s simply confirmation of what people already expected.

To show you what we mean, here’s a graph of the S&P 500 over the last twelve months.²

So, what’s the next good thing investors can expect? Unknown. That’s the next area of uncertainty. Previously, even when the pandemic was at its worst, investors had a lot to look forward to. A vaccine. Falling case numbers. More government stimulus. But now vaccines are here, case numbers have been falling for months, and there are no more stimulus checks in the offing. It’s like returning from a trip to Disneyland. The kids are exhausted. The parents must return to work. And everyone’s wondering when the next vacation will be.

Until there’s something new to feel excited about, many investors worry there’s a ceiling on how much higher stocks can rise.

Before we go on, let’s return to inflation for a moment. We mentioned there were two issues with economic growth. The second issue is fear. Specifically, fear that the economy will grow too much, too fast.

If the economy grows too quickly, prices will rise across the board and the value of our currency would drop. This, essentially, is inflation: When the general price level rises, a dollar simply pays for less than it used to. That makes it much harder for people to buy the goods and services they need. Or to pay off their debts. It makes it harder for businesses to hire new workers or pay the workers they already have. The upshot? When inflation gets too high, consumer spending plummets, unemployment jumps, and economic booms turn into economic busts.

For investors, the question isn’t about whether inflation will go up. It already is. The question is, will this inflation be temporary, or long-term? The answer will determine how big of a deal it really is.

There’s certainly a good argument that it’s temporary. That’s how the Federal Reserve currently sees it (more on them in just a minute). The thinking is that this inflationary spike is driven by temporary problems related to reopening the economy. As soon as society settles down and regains equilibrium, prices will settle down, too. But we don’t know for sure. It’s not hard to imagine a future where, by the end of the year, the world is still wrestling with the implications of the pandemic. Supply could still be struggling to keep pace with demand. Prices could keep rising. We’re still a long way away from that. But if that is what the future holds, the Federal Reserve would need to do something about it.

And that’s the other area of uncertainty.

You see, the Federal Reserve has what they call a “Dual Mandate”. To put it simply, their mission is to “foster economic conditions that achieve both stable prices [manageable inflation] and maximum sustainable employment.”³

The problem is, it’s not always possible to focus on both goals at once. The Fed must prioritize, and right now, employment is a far higher priority. For the last year, the Fed has helped prop up the economy by buying billions in bonds to keep interest rates low. (Lower interest rates make borrowing less costly, which means businesses and individuals can borrow and spend more, thereby pumping more money into the economy.) But that can’t go on indefinitely. At some point, the Fed must raise rates, especially if inflation keeps rising.

For months, the media has been asking the Fed when they expect to raise rates. For months, the Fed’s answer has been some variation on, “Not until the economy is ready.” Currently, the Fed simply doesn’t see rising inflation as an issue. At least, not compared to the task of getting the economy back to full employment. But for investors who’ve become hooked on the drug of low interest rates, these assurances do little to calm their fears. Why? Well, low interest rates mean that many types of investments, most notably bonds, simply don’t provide the same return on investment as they would in a high-interest rate environment. That drives more and more investors into the stock market to get the returns they need. But what happens when interest rates go up? Consumers and businesses could cut back on spending, which in turn could cause earnings to fall and stock prices to drop.

Rumors persist that the Fed will begin “tapering” their bond-buying sooner rather than later. (This means the Fed will gradually buy less and less in bonds, resulting in a gradual increase in interest rates.) Whenever the headlines even hint at this, the markets tend to spasm. This is the cause behind many of the price swings we’ve seen in recent weeks.

So, that’s the story behind the recent volatility. The question is, what do we do about it?

The first thing we need to do is accept that these areas of uncertainty are likely to persist for some time. In other words, we need to be mentally prepared for a sustained period of consolidation/volatility. If the reverse happens and the markets resume their upward climb? Fantastic! But if not, at least we’ll be prepared.

The second thing to do is remember that we are prepared – for short-term volatility and long-term inflation. If interest rate fears worsen and volatility goes up, we are ready to play defense and move to cash. If there’s a general rise in prices and inflation skyrockets above what the Fed can handle, we don’t have to ride out another market crash like so many investors do. As always, we’ll obey the rules of our strategy and do what the trend dictates. If our technical signals indicate major volatility on the horizon, we’ll act accordingly.

The final thing you can do is let us know if you have any questions or concerns. We’d be happy to speak with you! But in the meantime, keep in mind that while April showers bring May flowers, June sun brings fun! Summer is just around the corner, so go enjoy it. Our team will continue to man the fort around here. If there’s ever any action we need to take, or development you need to know, we will contact you immediately. As always, let us know if there is ever anything we can do for you!

₁ “Consumer Price Index – April 2021,” Bureau of Labor Statistics, May 12, 2021. https://www.bls.gov/news.release/pdf/cpi.pdf

₂ “S&P 500”, Google.com, accessed May 19, 2021.

₃ “The Federal Reserve’s Dual Mandate,” Federal Reserve Bank of Chicago, October 20, 2020. https://www.chicagofed.org/research/dual-mandate/dual-mandate

2020 Elections – Prepare and Be Patient

Written by Minich MacGregor Wealth Management on October 28, 2020. Posted in Uncategorized.

Pandemics and protests. Wildfires, market crashes, and a recession. If someone ever tries to tell the story of 2020 on film, it will take more movies than Star Wars. At one point, we even had to worry about murder hornets. Murder hornets!

There’s no question this year has been a crazy one. But it’s about to get even crazier – because a new presidential election is less than one week away.

Over the last few weeks, several clients have asked us what the election could mean for the markets. At a time when there is so much uncertainty to deal with, the thought of adding an election to the mix can seem overwhelming. So, we thought we’d write about how we should prepare for both the run-up and aftermath of the election. What exactly does the upcoming election mean for the markets?

Short-Term View: Prepare for Volatility

Uncertainty. That’s the keyword. Investors hate it, the year has been full of it, and the lead-up to a presidential election just brings more of it. As a result, the markets often see increased turbulence in the month before an election. For example, in October of the last four presidential election years, the markets fell.¹

We don’t ever try to predict the future, but we should be especially prepared for volatility this year. That’s because there are still so many question marks surrounding our economy and the pandemic. For example, the pandemic is showing no signs of stopping, and indeed cases may climb again as winter sets in. The economy has improved, but is still on thin ice, with unemployment rates still stubbornly high. Investors are watching Congress with bated breath, waiting to see whether they’ll enact a new stimulus package. If not, that could spell trouble, as many economists believe more stimulus is needed for the economy to recover.

But there’s another reason why we should prepare for volatility: The possibility of delayed – or worse, disputed – election results.

Thanks to the pandemic, more people are likely to vote by mail than ever before. Mail ballots take longer to count than traditional ones, and some states “will count ballots that are delivered after the election if they are postmarked by a deadline.”² Because election officials are more concerned with counting votes correctly than quickly, we may not have a winner declared for several days or even weeks. In fact, earlier this year, during primary season, several states needed more than a week before they could declare a winner.

Remember, uncertainty is the key word. Any delay may well cause more of it, which could trigger volatility. Then, too, some politicians have cast doubt over the very idea of mail ballots. If the losing candidate feels there is ground to contest the results, that could delay the process even further, leading to – you guessed it – more volatility.

We don’t have to look far back in history to see what the markets did the last time results were delayed. Remember the drama surrounding the 2000 election? On election night, Florida’s results were considered too close to call. Over the next month, Americans learned more than they ever wanted about things like dimpled chads and butterfly ballots. The S&P 500, meanwhile, dropped over 8% between election day and December 15 when the result was finally decided.³

Now, none of this is to say that pre- and post-election volatility is guaranteed. It’s not. We should, however, prepare ourselves for it. Because the more mentally prepared we are to weather short-term uncertainty, the better equipped we are to remember…

The Long-Term View: Patience Over Politics

Every four years, we hear people say, “If the Democrats/Republicans win, we’re going to sell (or buy) because that means the markets will fall (or rise).” It is understandable why people think this way. After all, politics play an increasingly large role in our daily lives. Why wouldn’t they impact our portfolio, too? But the truth is, presidential elections are relatively unimportant when it comes to the markets, at least in the long-term. A quick look at history bears this out.

Historically, the S&P 500 has gone up 10.8% under Democratic presidents and 5.6% under Republican presidents.⁴ That’s not a large difference and can be attributed to a whole range of factors besides politics. Either way, the markets tend to go up over time.

One thing we’ve noted in recent years is that as elections get more partisan, so too does the rhetoric about how the candidates will impact the markets. For example, here’s the opening sentence from a CNBC article published on November 3, 2016, shortly before the election:

Wall Street’s long-running view that Hillary Clinton would easily become the next president has been replaced by a new fear that Donald Trump could win, and it probably won’t be a pretty picture for stocks if he does.⁵

Here’s a snippet from an article in the New York Post written a few months before Barack Obama was first elected:

…it’s hard to see how a President Obama would be good for Wall Street. He wants to raise the capital-gains tax…[which] would be great for the tax-shelter business, but stocks would tank…in other words, the markets could fall further from their already-beaten down levels once the street begins to focus on an Obama presidency.⁶

Both these predictions ended up being wide of the mark. In the first year of President Obama’s presidency, the markets rose 23.45%.⁶ In President Trump’s first year, the markets gained 19.42%.⁷ Doom and gloom is predicted more and more with each election and yet the markets keep going up over time.

This is exactly why we are long-term investors. As the saying goes, it’s not about timing the market. It’s about time in the market. This is why making investment decisions based on politics just doesn’t make sense. As you already know, emotional decision-making has no place when it comes to investing. But few things prompt as much emotion as politics. That’s why it’s crucial that we keep politics out of your portfolio.

It’s true that Trump and Biden have different economic policies, and some of their policies will affect the markets to a degree. But the markets are like the world’s most complicated cake recipe, and the president is just one relatively minor ingredient. Far more important are supply and demand, innovation and invention, mergers and acquisitions, the ebb and tide of trade, and a host of other economic developments both large and small. Making major investment decisions based on politics would be like carefully measuring how much chocolate goes into your cake while ignoring the amount of sugar, flour, and eggs.

So, what does the election mean for the markets? In the short-term, potentially a lot. In the long term, probably not much.

2020 has been a long, crazy year. It’s possible the next few months could be even crazier. But in the grand scheme of things, they are still just a few months, and this is still just one year. We’ll be investing long after Trump and Biden are both names in the history books.

In the meantime, our team is here for you to answer your questions. Please let us know if we can be of service. Be well, stay safe, and enjoy the rest of your year!

SOURCES:

¹ “S&P 500 Historical Prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/SPX/historical-prices

²“When Will We Know the 2020 Presidential Election Results? A Guide to Possible Delays,” The Wall Street Journal, https://www.wsj.com/articles/will-we-know-who-is-elected-president-on-election-night-a-guide-to-possible-delays-11596629410

³ “Why stock market investors are starting to freak out about the 2020 election,” MarketWatch. https://www.marketwatch.com/story/why-stock-market-investors-are-starting-to-freak-out-about-the-2020-election-11600964863

⁴ “Democratic presidents are better for the stock market and economy than Republicans, one study shows,” Business Insider. https://markets.businessinsider.com/news/stocks/stock-market-election-democratic-republican-presidents-better-performance-economy-gdp-2020-8-1029528932#

⁵ “This is what could happen not the stock market if Donald Trump wins,” CNBC. https://www.cnbc.com/2016/11/02/this-is-what-could-happen-to-the-stock-market-if-donald-trump-wins.html

⁶ “Wall St. Death Wish,” The New York Post. https://nypost.com/2008/08/04/wall-st-death-wish/

⁷ “S&P 500 Historical Annual Returns,” Macrotrends, https://www.macrotrends.net/2526/sp-500-historical-annual-returns

Five Do’s and Don’ts During Times of Market Volatility

Written by Minich MacGregor Wealth Management on March 26, 2020. Posted in Minich MacGregor Missive, News.

As you know, the coronavirus pandemic is not only a health crisis. It’s also causing an economic crisis. That’s why, over the last month or so, many of our clients, friends, and families have asked us what investors should be doing about all this volatility. So, we thought we would write down:

Five Do’s and Don’ts During Times of Market Volatility

1. DON’T panic and make emotional decisions.

During times of uncertainty or fear, humans are prone to make decisions based on their “fight or flight” response. Yes, this is even true of our financial decisions! When market volatility strikes, many people make knee-jerk decisions simply so they can feel like they are doing something. So they can feel “in control.” But think about when you’re driving a car, and you see an animal in the road. What happens when you jerk the wheel? Yep – you’ll probably overcorrect and increase your odds of crashing. The same is true with your money. Knee-jerk, or emotional decisions, often tend to do more harm than whatever it is we’re reacting to! So, when making a decision, always ask yourself, “Why am I doing this? Do I have a specific reason, or is it just because I feel like I have to do something?”

2. DO think long-term.

Investing, by its very nature, is a long-term activity. Even people who are close to retirement are still investing for the long-term. That’s why, while bear markets are uncomfortable, they’re also somewhat overrated. Markets fall over days, weeks, and sometimes, months. But history has shown that they rise over the course of years and decades, which is good, because you’ll probably be investing for years to come!

To return to our driving analogy, think of the last time you were caught in a traffic jam. You’re sitting there, idling in traffic, when suddenly, the lane next to you starts to move. So, you quickly merge into that lane, only to get stuck again. Meanwhile, the lane you were just in is now moving…and all the cars that were once behind you are now speeding ahead.

Maddening, isn’t it?

When bear markets hit, investors often panic. Instead of sticking to their long-term strategy, they sell, sell, sell – at a time when everyone is selling. This means they are selling low. In other words, they try to change lanes in the middle of a traffic jam.

But again, we’re in this for the long-term. The road we’re on stretches for miles. Sometimes, the speed limit is 75 miles per hour. Sometimes, it’s only 25. Trying to take shortcuts just leads to longer delays.

3. DO think about your current asset allocation and risk tolerance.

Market volatility is a good time to determine whether you are invested the way you should be, given your age, financial goals, and ability to take on risk. Generally speaking, younger people can often afford to weather extreme volatility more than older people who are very close to retirement. So, look at your portfolio to determine whether it’s time to move into more conservative investments that leave you less exposed to the kinds of swings we’re experiencing in the stock market. And remember that you can always ask a professional for a second opinion if you’re unsure!

4. DON’T look at your portfolio each day and stress about every dip in the stock market.

That said, one of the worst mistakes investors can make is to obsessively check how their portfolio is doing. The markets are like a person’s body temperature – they are constantly rising and falling. Just as you probably don’t take your temperature every day, you don’t need to do that with your money, either. Again, think long-term, not short. Prioritize your overall financial health over the day-to-day.

5. DO set up an emergency fund if you haven’t already.

Like market volatility, economic recessions are inevitable. Sometimes they affect us, and sometimes they don’t. There’s no way to see the future, but we can prepare for it. Setting up an emergency fund, with enough money inside to cover three-to-six months’ worth of living expenses, is always a good idea. This is especially true right now, given that many people may be out of work or in quarantine for some time.

Market volatility is never fun, but it is a normal part of investing. So long as we remember to think long-term and rely on ration over emotion, we can continue working towards our goals and dreams.

And that is what investing is all about.

If you ever have any questions or concerns about the markets, please feel free to contact us. We are always happy to chat!