The purpose of this mid-week email is to check in with you about this very unprecedented time…for the market, the economy, for our political system and for our personal well-being.
While it is common to hear; “we have never been HERE before” or “it is different this time” I want to reassure you, that the worry and stress you are feeling is completely rational given the many stressors and threats we are facing in 2020.
None of us can predict the future, but one thing I believe: 12 months from now we will look back on this time and there will be many answers to the questions we have today. There will be many unexpected twists and turns and we will most likely be in a much less tumultuous period. But know, we could have a tough road over the coming months.
There are stocks that will perform very well as their business plan or industry is benefiting from how business is done during this Pandemic. All companies will not go down in lock step: there will be bright spots and many smart managers who have built portfolios that will outperform during this time: know that your portfolio is a blend of many of the best and brightest minds, the macro trends that are now in motion, and the companies that will still be standing when this period has passed!
I do think this will be a very volatile, and challenging time if you are focused on what the market is doing TODAY. Now is the time to remind yourself that we have been through very challenging times before. We have prepared over the last year (my theme of 9th Inning Investing) by becoming more defensive in how much you have in stocks, bonds, and cash. We have identified if there are expenses in the next 6 months you will need cash from your account for.
What we will NOT do is try to time the market, sell your holdings, or go to cash. We will not make predictions that result in completely dismantling your current portfolio. We will have the cash you need for living expenses for the next 2-3 years. We will sell any specific positions you no longer believe in.
A frequent CNBC guest, billionaire media mogul Barry Diller, in a CNBC interview on Tuesday urged investors to keep plenty of “powder dry” (AKA cash!) in light of just how far the stock market has come since bouncing off the March lows. Diller, the chairman of both Expedia and IAC, warned that the uncertainty swirling around the election will only serve as another headwind for a market many believe is overvalued and has already gotten “stretched.” Here is an excerpt from his interview:
“Each day from now until November is going to get more and more concerning, and more and more decisive, and more and more difficult,” said Diller, who has backed Joe Biden to the tune of more than $600,000, according to Federal Election Commission data cited by CNBC.
“I actually think if I could wake up in mid-November, maybe it’s even late November given what might be contested, I would rub that magic genie,” he said, explaining that there could be an initial, but temporary, “downdraft” in the stock market if Biden wins.
“As far as business is concerned, I don’t think long term there’s going to be any particular difference” between Biden and Trump as president, he added. “I think there will be differences personally. I think people are going to pay higher taxes,
particularly the wealthy. I think there are going to be things that are going to be done, really done, to deal with inequality.”
So…let’s look at the possible the reasons the market could / should / might go DOWN:
· The markets decide that there could somehow be a meaningful corporate tax hike.
· Election uncertainties, including the possibility that the Democrats and/or the Republicans will not concede.
· Small business depression as millions of small businesses remain closed and/or are closed forever because of The Coronavirus Crisis.
· Covid second wave hits badly into and throughout this winter.
· Fiscal free money spigot from the Republicans and Democrat Regime might have run out, though I do not think the Fed's monetary stimulus is anywhere near running out.
· Ugly charts and dislocating stocks in many sectors can portend a meaningful top.
· Seasonality is not favorable for the next few weeks.
· Bad outcome to the US-China trade and political tensions.
Now, let’s look at the possible reasons the market could / might / possibly go UP from here:
· Maybe Covid trends will really improve and flu season will not be bad either.
· Maybe a real, actual proven vaccine hits sooner (say by year-end) than later (say by next summer).
· Maybe the election is a landslide for one side or the other and the risk of a contested election goes away.
· Maybe the Republicans and Democrats in power get a fiscal agreement done so more stimulus comes sooner rather than later ...If the stock markets drop another 10% before the end of October this could really happen!
· Fed prints and creates even newer free money monetary programs.
· Good outcome to the US-China trade and political tensions.
Finally, this chart of the S & P 500 that is the anatomy of a market top: trace your finger over the yellow sections I have highlighted. This is what a market top looks like. We are forewarned. We will not be blindsided. Call me if you want to talk about your portfolio, but just know. Sometimes you just have to Keep Calm and Carry On: and this is exactly what we will do! There will be a time to buy when we find opportunities that increase our confidence we should add to your stocks.
