Skip to main content

Sound Advice: September 16, 2020

 Beware the Witching Season

The months of September and October have historically been among the most difficult of times for the stock market.  On average, September has been the weakest of the year.  October has been Ground Zero for the biggest market drops of the last 100 years. Yet despite the fact that has been a period of increased volatility, it has often been a time when weakness has been followed by a significant rebound.  Even so, let's not jump the gun.

There may be no weakness and there may be no rebound.  For the first seven weeks of this year, stocks were on a tear.  Then came the pandemic, which led to a national lockdown and devastation among the nation's businesses.

While prices were climbing, so were valuations, almost to a point of excess. Then a new era of volatility showed up, with daily changes in the leading averages often running into triple digits.  In the wake of the plunge, market prices did a sharp about-face.  The rebound, however, was largely driven by a handful of tech stocks while the broad market lagged far behind.

That rebound continues, despite the likelihood that corporate earnings will be down by more than 25% this year and may not get back up to 2019 levels for two to three years.  So current valuations appear to be discounting far ahead.

One reason for high valuations is ultra-low interest rates and the Fed has made it quite clear that it will maintain interest rates at near-zero levels for several years to help the labor market.  With more than 10 million people still out of work, that will be a huge challenge.

Although the summer months have provided opportunities to be out and about, the upcoming fall and winter will bring another span of confinement. Let's hope that sometime next year the fruits of intensive medical research may allow us to return to something approaching normal living.  A number of vaccines are now in Phase III clinical trials, but there are hurdles to be crossed before we can sound an all-clear.

One hurdle is the combination of efficacy and safety.  The next hurdle is production and distribution.  To be sure, there are other questions:  How long will immunity last?  Will booster(s) be needed?  Which vaccine is the most effective?  And so on.

There is no magic bullet and daily life will not get back to where we were overnight.  While waiting, we are all best advised to take the necessary precautions to stay safe and healthy. 

Ignoring best practices, gathering in large groups, and making as if the situation has changed is indeed a recipe for disaster.

There is no vaccine for stupidity.

N. Russell Wayne, CFP®

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: June 17, 2020

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches...
Post a Comment
Read more