Tuesday, February 25, 2020

Market Volatility - What Should You Do?


February 25, 2020

The corona-virus appears to have inspired two distinct schools of thought among investors. Some investors currently favor opportunities that are considered lower risk, like Treasury bonds and gold, because they’re concerned about the potential impact of the coronavirus on the global economy. Others are piling into higher risk assets, like stocks, that could benefit if central banks (like the United States Federal Reserve) take steps to stimulate economic growth, reported Randall Forsyth of Barron’s.

During periods of uncertainty, like this one, the benefits of holding well-allocated, well-diversified portfolios become clear:

  • By holding asset classes (e.g., stocks, bonds, and other asset types) that respond differently to the same market conditions, investors protect themselves from the poor performance of a single type of asset.

  • By diversifying holdings within asset classes (e.g., investing in different parts of the world, investing in different industries), investors protect themselves against the poor performance of a single investment.

  • Cash is King – in times like this. If you don’t have some, raise some. Look at areas in your portfolio that have done well, and take some profits. You’ll then have some “dry powder” to eventually reinvest in trophy stocks that have moved lower.

  • Gold - allocating at least 5% - 10% of your overall portfolio can help reduce volatility and protect your purchasing power long-term. There are several exchange-traded funds (ETFs) available that can get you exposure to gold prices within your brokerage accounts. Precious metals have recently reversed their downtrend and are now out-performing the stock market. 

Implementing a well-allocated and diversified portfolio that aligns with your goals, objectives, and risk tolerance can help provide reassurance when markets are volatile.  Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.

As of now, our indicators show us that the market has not reversed its uptrend. As of this writing, we are about 5% off the market’s recent highs. We were over-due for a correction. Pull-backs in the market of 5%-10% are normal—even in a Bull (up trending) market. We’d need to see another 10%+ decline from current levels in order for the market to reverse its uptrend—that’s when you’ll want to get defensive. We are not there, yet.

Please talk-through your concerns with you advisor. Avoid reacting out of emotions. Review your plan and adjust as needed. This will help you sleep better, and be better prepared to weather a market storm.

Greg Womack, CFP
(405) 340-1717

Tuesday, February 18, 2020

Investors Remain Confident Despite Declining Economic Growth

Many stock markets around the world moved higher last week.

Investors’ optimism in the face of economic headwinds has confounded some in the financial services industry. Laurence Fletcher and Jennifer Ablan of Financial Times cited several money managers who believe investors have become complacent. One theory is investors’ buy-the-dip mentality has become so firmly ingrained that any price drop is seen as a buying opportunity, regardless of share price valuation.

Another theory is investors remain confident in the face of declining economic growth expectations because they expect central bankers to save the day:

“Key stock markets are hovering close to record highs even while the death count from the China-centered virus rises and travel in, out, and around the country remains heavily restricted, hurting the outlook for domestic and international companies. Regardless, stumbles in stocks are quickly reversed. To some traders, this is proof that investors believe major central banks will pump more stimulus into the financial system.”

Ben Levisohn of Barron’s doesn’t think investors in U.S. stocks are complacent. He wrote:

“Yes, [investors have] decided to stay invested in U.S. stocks, but compare it with the other options. Emerging market stocks near the epicenter of the outbreak? Treasury notes with yields of just 1.59 percent? Cash? But, they haven’t sat idly by, either. They’ve dumped the stocks most exposed to coronavirus and to a slowing economy – things like energy, cruise lines, airlines, steel.”

Treasury bond markets are telling a less optimistic story than stock markets. The U.S. treasury bond yield curve has flattened in recent weeks. On Friday, 3-month treasuries were yielding 1.58 percent while 10-year treasuries yielded 1.59 percent. When there is little difference between yields for short- and long-term maturities, the yield curve is considered to be flat.

Historically, the slope of the yield curve – a line that shows yields for Treasuries of different maturities – is believed to provide insight to what may be ahead for economic growth. Normal yield curves may indicate expansion ahead, while inverted yield curves suggest recession may be looming. Flat yield curves suggest a transition is underway.

Best regards,
Womack Investment Advisers, Inc.

Oklahoma / Main Office: 1366 E. 15th Street - Edmond, OK  73013
California Office: 4660 La Jolla Village Dr., Ste. 100 - San Diego, CA 92122
Phone (405) 340-1717 - Toll Free (877) 340-1717

2020 Democrats' Fundraising and Spending

When billionaires Michael Bloomberg and Tom Steyer threw their names in the hat for the Democratic nomination for president of the United States, most probably expected they would spend some of their own money in the pursuit of the nomination.  But few expected how they would bury the race in their own money.  To date, Steyer and Bloomberg have each spent nearly $200 million, each more than double Democratic contender Bernie Sanders, and each more than three times Elizabeth Warren and Joe Biden.  All that money doesn’t seem to have done much for Tom Steyer, but Bloomberg’s omnipresent advertising in critical markets has propelled him higher in the polls steadily.  (Chart from Marketwatch.com)