What is Happening in the Stock Market and What are we Doing in Client Portfolios?

Dec 24, 2018

What is Happening in the Stock Market and What are we Doing in Client Portfolios?

Given the rather violent market swings lately, I thought you would appreciate our perspective on the markets and investment portfolios (in the form of the Q&A below).  Of course, we would be delighted to discuss further by phone at your convenience.

  1. How is the Stock Market Doing Lately?   How Does this Compare with Other Recent Markets?
  • As of this writing of this email, the S&P 500 is down ~19.5% in the last 3 months (down ~10.5% this year).
  • This is the worst downturn since 2011 (that one was ~18%, the worst downturn since the 2007-09 Financial Crisis, when the S&P 500 was down 58% from peak to trough).
  • We also have not seen a so-called Bear Market (technically when the market is down 20% or more) since the 2007-09 Financial Crisis.
  1. Why has the market been falling (isn’t the U.S. economy strong?)?
  • The U.S. economy has been stronger this year thus far than it has been in ~11 years:  3% GDP growth; 27% earnings growth.
  • That said, growth is projected to start to slow soon; the market is volatile (lots of up and down; more down) because it doesn’t know how much or how quickly the economy will turn down.  Markets hate uncertainty; some (more short-term) market participants will sell first (in the case of a worst-case growth downturn) and ask questions later.
  • There is a major disagreement between the stock market and the Federal Reserve:  the market is signaling the Federal Reserve that it wants a “significant pause” on Federal Funds rate hikes and it could continue to be grumpy (volatile) until it gets more agreement from the Fed on this matter.
  • Also, the market is concerned about the continuing trade “war” with China
  1. What is True Wealth Advisory Group doing with investment portfolios to mitigate this downturn?
  • The most important actions to mitigate this downturn were taken earlier this year:  the asset allocations we choose for clients are precisely with these types of downturns in mind.  Every client has significant or very significant exposure to bonds which cuts the downturn of the portfolio to a fraction of the stock market’s downturn (bonds are up nicely over the last 3 months)
  • Also, we take advantage of these stock declines by selling some securities at a loss, which can be immensely helpful to our clients at tax time, and replacing them with similar securities.  That way our clients recoup a significant percentage of the paper loss back (in the form of tax losses or after-tax returns)

If you would like to discuss this, or anything else, in more detail, please let us know or just contact us  (click here).

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