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T
his Week from Jesse Hurst
Jesse W. Hurst, II
CFP® CERTIFIED FINANCIAL PLANNER™
AIF
® ACCREDITED INVESTMENT FIDUCIARY
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Someone recently said to me that if you ever wondered what it was like to live through the Spanish flu pandemic of 1918, the job loss of the Great Depression AND The Los Angeles Watts Riots of 1965, all at the same time, YOU ARE!!
We are not halfway through calendar year 2020, and the citizens of the United States have been through more physical and emotional pain and trauma than we would have ever thought possible just a few months ago. In late January and early February of this year, most people thought that the impeachment process and the very strong economic growth we were experiencing were going to be the two biggest issues in the upcoming Presidential and Congressional elections. Based on everything that has happened over the last four months, people no longer even mention impeachment, and the strong growth and full employment which were here just a few months ago, now seem like a distant memory.
This has elicited a massive emotional response as we are dealing with multiple crises concurrently. While everybody knows that the coronavirus kills, this is the seventh viral outbreak we have dealt with since calendar year 2000. There have been intrusive personal lockdowns, quarantines and social distancing requirements, along with an unprecedented shuttering of the economy. Why has the reaction to this outbreak been so different than previous episodes? One answer could be that this is the first social media pandemic we have ever experienced. Social media and cable news carry narratives in real time to people across the globe. Some of what is spread through these outlets is not true or fact checked. However, it does seem to spread fear very quickly.
According to First Trust Advisors Chief Economist Brian Westbury, this leads to people confusing what is scary with what is dangerous. He posits that these are NOT the same thing. While the COVID-19, coronavirus has tragically killed more than 100,000 people in the United States, and more lives are lost every day, Brian states that based on data that has come to light, the illness is still only slightly to mildly dangerous for most people under age 65, along with those who have pre-existing comorbidity issues. According to CDC data 81% of the deaths from COVID-19 are in this age group.
While every life is important and no death should ever be ignored or downplayed, the fear associated with the current situation has allowed us to move resources away from issues that are more dangerous but less scary. According to the website Komodo, since early March when the first shelter in place orders were issued, cervical cancer screenings were down 68%, cholesterol panels were down 67% and blood sugar test for diabetes were off 65%. I personally know that more than half a dozen of our clients have had surgeries postponed during this time period.
The first PG rated movie I saw at age 10 was Jaws. Ever since that movie came out, people in the United States have been fearful of shark attacks. According to the Florida Museum, there have been six fatal shark attacks in the last 10 years in the United States. However, this does not stop people from being fearful of sharks or thinking about them every time they get in the ocean.
Nobody that I know has considered changing their behavior to stop driving. However, it is statistically much more dangerous than getting bitten by a shark. More than 38,000 people die every year in the United States in crashes on roadways. An additional 4.4 million people are injured seriously enough to require medical attention, according to the Association for Safe International Road Travel.
Cigarette smoking is down in the United States over the last several decades. But, according to statistics from the CDC, it is still extremely dangerous. More than 480,000 people die each year in the United States from smoking related deaths. This includes more than 41,000 deaths as a result of secondhand smoke. On average, smokers die 10 years earlier than non-smokers.
I will conclude with a story that somebody told me many years ago to illustrate the difference between "scary" and "dangerous". A man is at the beach playing in the shallow waves when somebody yells "SHARK!!". He jumps out of the water, gets into his car, drives to a fast food restaurant for lunch then lights up a cigarette on his way home. He has avoided one scary activity but pursued many that were more dangerous.
Emotions tend to lead to poor decisions and poor outcomes. The team at Impel Wealth Management is here to help you try to understand and guide you through these situations successfully. It is part of our mission and calling as we continue "Moving Life Forward" together. Please do not hesitate to call if you have questions or concerns about how emotional biases could impact your financial goals and resources. Have a great day.
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Weekly Market Commentary
June 22, 2020
The Markets
Could it be the upside surprises?
U.S. stock markets have marched higher despite a pandemic, an economic downturn, and social justice protests - and a lot of people have wondered why.
Greg Rosalsky of
Plant Money spoke with Nobel Prize-winning economist Robert Shiller about, "...the mass psychology of a gazillion buyers and sellers, who each are telling themselves their own stories about why they're making the trades they're making."
Rosalsky and Shiller discussed some narratives that purport to explain recent market performance, including:
- Quarantine boredom. Matt Levine of Bloomberg has postulated "...a lot of individual investors buy stocks mainly because it's fun, and that the more fun stocks are, and the less fun everything else is, the more they'll buy stocks. In a pandemic, when people can't really leave their house and sports are canceled, there is a lot less fun to be had elsewhere...so people buy more stocks."
- Big, publicly-traded companies are safe. This theory suggests businesses hit hardest by the economic downturn often are not traded on stock exchanges. In a separate article, Rosalsky cited former technology executive Eric Schmidt who wrote, "Gigantic corporations, which have deep pockets, fancy accountants, huge legal teams, and access to international financial markets, are also better equipped to weather shocks than your local hardware store or small manufacturing company."
- Don't fight central banks. "The Fed is using its unlimited money-printing machine to single-handedly prop up the stock market. 'The Fed is itself an important narrative,' Shiller says. In reality, he says the Fed's magic over the real economy is limited. But its statements clearly move markets, and it has lots of power as a storyteller," reported Rosalsky.
On Saturday, Lisa Beilfuss of
Barron's offered another narrative. She reported:
"...upside economic surprises over the past two weeks - mortgage applications hit the highest level since 2008, retail sales rose at the fastest pace ever, and U.S. businesses added 2.5 million jobs in May instead of cutting an anticipated eight million, to name a few - are even better than they look and offer at least some proof that the stock-market rebound was driven by expectations for improving fundamentals...It's about the magnitude of the surprises versus Wall Street's expectations."
We don't know which narratives were responsible, but major U.S. stock indices moved higher last week.
Data as of 6/19/20
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500 (Domestic Stocks)
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1.9%
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-4.1%
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5.9%
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8.1%
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8.0%
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10.8%
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Dow Jones Global ex-U.S.
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1.8
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-10.9
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-4.1
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-1.1
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-0.1
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2.1
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10-year Treasury Note (Yield Only)
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0.7
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NA
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2.0
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2.2
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2.3
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3.2
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Gold (per ounce)
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0.1
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13.9
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29.1
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11.6
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8.1
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3.3
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Bloomberg Commodity Index
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1.4
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-20.2
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-17.0
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-7.2
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-8.4
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-7.0
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S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
What Do You Think?
In recent years, we've learned a lot about why investors do the things they do. For instance, we now know investors are not the omniscient, rational decision-makers economists believed them to be. Investors have built-in biases that sometimes cause them make errors in thinking.
One of those biases is known as confirmation bias. Investors (and non-investors) have a tendency to seek data that reinforces their beliefs and ignore data that suggests they're wrong. Recently, sentiment data has been published that supports diverse ideas about the direction of the economy and stock markets. For example:
- Consumer sentimentwas up month-to-month, suggesting Americans were more optimistic about their personal finances and current economic prospects in June than they were in May. However, sentiment remains down year-to-year and below the baseline, which is consumer sentiment in 1966 (the year the survey began).
- Investor sentiment was down week-to-week. Almost one-half of participants (47.8 percent) in the American Association of Individual Investors (AAII) Sentiment survey were feeling bearish last week, while one-fourth (24.4 percent) were feeling bullish. The bulls were down 9.9 percent week-to-week, and the bears were up 9.7 percent week-to-week. Some investors consider the AAII survey to be a contrarian indicator, meaning they think the survey's prevailing sentiment is incorrect. In this case, contrarians would be bullish.
- Money managers think the market is overvalued. Bank of America surveyed 212 money managers with $598 billion under management and reported 78 percent think the stock market is pricey. Survey participants indicated the most crowded trades were U.S. technology and growth stocks, reported John Melloy of CNBC.
When data supports varied opinions, how can investors avoid mistakes? One of the best ways is to work with an advisor who has a clearly defined process and who will help you develop a plan to meet your financial goals.
Weekly Focus - Think About It
"A public-opinion poll is no substitute for thought."
--Warren Buffett, Investor and philanthropist
Best regards,
Jesse Hurst CFP ®, AIF®
Invesmtent Advisor Representative
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Securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity.
These views are those of Carson Coaching, and not the presenting Representative, the Representative's Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client's portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as "The Dow," is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
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Sources:
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Is there something we can help you with? Please call me at 330.800.0182 or email me directly at [email protected].
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Impel Wealth Management
2006 4th Street, Cuyahoga Falls, OH 44221
P: 330.800.0182 TF: 844.422.5550 F: 234.312.0460
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