Should Investors Again Be Euphoric?
It certainly is a relief to see that on the health front things are beginning to peak. It's safe to say that the unprecedented action taken by the public is having a dramatic effect on this virus outbreak. We should all be proud of our efforts and courage.
Recent Market Surge
After a strong rally in equity markets over the last week, one might be tempted to believe that it is smooth sailing going forward. I have noted that there has been an increase in temptation by some market watchers that, when the worst is over on the virus front, the equity markets are bound to go straight up. That perspective I believe ignores the reality of the economic consequences of the pause in economic activity on a global basis.
Long-term, I remain cautiously optimistic. I believe the US economy will recover and remain the envy of the world. I believe that some sense of normalcy will return, and consumers will begin to spend again. Because economic activity will return, I believe long-term this will be positive for equity markets. I further believe that inflation will be low and interest rate will remain at lower levels. I believe the housing market will not collapse but merely slow.
On the short-term, it's anybody's guess what market movement will look like. Just because the market has rallied strongly for the last couple weeks does not mean this will continue. The full damage from this virus outbreak has yet to be seen as companies are about to report earnings. Importantly, companies are about to project what they believe future earnings will look like and I expect the projections will be cloudy at best.
Is it possible that markets will continue to go up? Yes. Is it also possible that markets will fall and retest previous lows? Yes. You must look long-term to have more certainty. Short-term is uncertain. Cash investments likely are best dripped in over time; dollar cost averaging is your friend. Diversification matters.
Maintain a Rational Perspective
In this week’s video update, I talk about the importance of being sober in perspective and not falling prey to the temptation to be euphoric after a solid week or two of equity market performance. The mistake many investors make is believing that what happened short-term is necessarily indicative of what will happen in the near future. As investors and managers, we do our best to avoid this view as we invest portfolios.
You can learn more about this perspective in this week’s video which you can find here:
Be Cautiously Optimistic Long-Term
In closing, I continue to be cautiously optimistic for the long-term. The tremendous stimulus measures taken by the Federal Reserve and the government will have an impact. The size of the stimulus, significantly greater than what was implemented during the financial crisis, I believe will help buffer the effect of this pandemic crisis.
As a reminder, our DWM Hope Crew has been delivering lunch and snacks to medical professionals on the frontline of this virus crisis on behalf of Destination Wealth Management. You can follow along here:
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Please continue to be safe everyone. Take the steps necessary to protect you and your loved ones. Please know, everyone at DWM is still here ready to help you. You can speak with your DWM advisor by phone or video conference and I'm here as well if you have questions. Our entire team and DWM is working full-time on your behalf during this difficult crisis.