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: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more

Sound Advice: September 19, 2026

Is AI good news or bad news for investments? AI is potentially very good news for investors—but not automatically good news for every investment . The key distinction is between AI as an economic technology and AI stocks at today's prices . As of September 2026, there are compelling reasons for both optimism and caution: The bullish case: AI spending remains enormous. Gartner estimates global AI spending at $2.7 trillion in 2026 , up 49.5% year over year. If AI produces sustained productivity gains, corporate profits could expand well beyond the companies currently selling AI hardware. The valuation case: Investors have already priced in a lot of success. Valuations of major AI companies are elevated and expected long-term earnings growth is well above historical norms. The spending-risk case: The five largest hyperscalers are expected to spend more than $1 trillion on AI-related capital expendit...
Post a Comment
Read more

Sound Advice: September 30, 2026

Now what? For many women, there comes a time when financial confusion reigns.   It may come after a spouse passes or a marriage goes off the rails.   It’s the same situation for women who never married. The questions are many.   The answers may be few.   Toward the top of the list of concerns is the issue of understanding.   Although there are always complex matters, it’s essential that all of the elements are clearly presented in a straightforward fashion.   There’s more.   Presentation is one thing, but comprehension is another. If there’s a question, it must be asked.   Clarity is the key.   Don’t just say I get it when you don’t.   And, it’s essential to grasp how each of the items fits in the overall situation. In the absence of understanding, no decisions will be made. Here are some of the most pressing questions? What’s the smart way to handle my investments? Where should I go for advice? A bank, stockbroker, attor...
Post a Comment
Read more