April 2, 2020
On March 23rd, 2020, we believe that the market reached its’ low point with a closing value of 2,237 on the S&P 500. Yesterday the equity market reacted adversely to the President’s news conference Tuesday night where it was announced that our country can expect to lose between 100,000 and 240,000 of our fellow citizens to coronavirus. These are large numbers and the market was obviously a bit shocked by them. As of 1pm today the S&P 500 stands at 2,516. This is a 12.47% move up from the March 23rd low – even following Tuesday and Wednesday’s selling. Therefore, it appears that the market has “retested” the March 23rd low and held well above. It is our firm’s opinion that the equity market we will hold at or above the March 23rd low and should begin, within the next months, a sustained large upside move. Markets respond adversely to negative news, and while Tuesday night’s press conference had plenty of positives, anytime you’re contemplating this large number of deaths, it takes a toll on us emotionally.
We need to point out that prior to Tuesday night’s press conference, potential numbers in the millions of American deaths had been mentioned. In other words, social distancing, and the other mitigation measures that are being utilized by our federal and state governments, are actually working to limit the damage.
Our Market Outlook Now?
Markets can afford to lose perspective – but we as investors cannot. I would like to be clear about our firm’s perspective. We believe that the market has already touched on its low point. It may be retested, but it’s very likely to hold at or above that level. Why? With the abundance of media attention to this particular pandemic, and the need for social distancing which led to many business closures, the market has already priced in an extremely severe recession. Our firm cannot totally rule out a short recession but truly believes that your investment accounts have already bottomed and are likely to make significant upside moves, with occasional give back days, and a near-term rebuild your asset values!
Short-Term Pain Equals Long-Term Gains
When the coronavirus became known a little over a month ago our economy was truly the growth engine of the world and the brightest, most vibrant economy we’ve ever seen in America. Remember, the coronavirus is not an economic event – it is a health event. Dealing with it requires our country’s full focus and for that reason we’re going to endure some short-term economic and investment pain. But this is another great life example of how short-term pain will clearly, in our view, lead to long-term financial gain. How? Because of the tsunami of stimulus being injected in the U.S economy by our federal government, and the Federal Reserve, when we get through this next thirty days or so (and as the country begins to return to business as normal – and it will) the economy and your investments, should rapidly return to normal valuations.
But on top of returning to where it was pre-coronavirus, it will have the “push” of the largest stimulus package, by far, in the history of our nation. It will also feel the effects, beginning in June, of the US, Mexico, and Canada (USMCA) trade agreement and the China trade agreement. Lastly, we believe it’s likely that more stimulus, in the form of a large national infrastructure spending project, will be passed by congress in the second half of the year!
We believe this virtual tsunami of stimulus will propel the equity market to the highest levels seen in our country’s history. Timing? We anticipate that by the fourth quarter of this year we are likely to recapture the old market highs and move well beyond them prior to December 31, 2020. This begs the question “Why liquidate assets, not knowing exactly where the turn in the market is, that are ludicrously undervalued now?” When past housing crisis’ have happened, and home prices have fallen dramatically, did anyone even consider dumping their house for whatever they could get? For fifty cents on the dollar? Of course not! Then why do we do this with our financial investments? Could it be that our investments have a known value day to day and that we spend our time, energy, and worry focusing on their day to day valuation changes rather than just saying “No, if I won’t sell my house for fifty cents on the dollar why should I sell my liquid assets for fifty cents on the dollar?”
Our Investment Approach
To manage your money well, and to achieve an exceptional long-term result, we have to do several things. First, we have to remain long-term oriented. Second, we have to attempt to limit downside damage, either through sales or various hedging techniques, if we believe a lengthy recession is in the offing (and we don’t). Third, we have to recognize that temporary valuation disparities, like this one where your current investments are marked down to ludicrous prices, do not last long. They never have in our country’s economic history. The equity market has never failed – long-term – to produce a 9%-10% annual return. That’s through the worst of crisis’, many of which, make this one seem rather small. Through past pandemics, wars, famine, the great depression, and numerous serious depressions, our country has continued to grow, U.S. companies have continued to grow their earnings, and we believe the outcome this time should not be any different. We believe strongly that in the next thirty days, as the coronavirus beings to recede (and we believe it will!) our lives will begin to return to normal, and that your investments have already bottomed in value and are poised for a significant upside movement and a recapture of the old highs and above!
So, here’s my bottom-line suggestion. Disregard the current low valuations of great companies that will not go bankrupt (particularly with the amount of stimulus that’s being poured into them by the government) and focus on what we have. Our health, our children, our grandchildren, our homes, our extended family and friends, and the fact that we were lucky enough to be born in the United States of America. Let’s focus on that and remember this event, however cataclysmic it has been, is bringing our country together quickly. The reason we live in the greatest country in the world, and have the greatest opportunities on this planet, is because some really hardy and tough-minded men and women went before us and laid the groundwork for everything we have today. That gives us an obligation to do the same thing in laying that groundwork for future improvement in our children and grandchildren’s futures. Tough times never last, tough people do!
I, and everyone here at Spectrum Financial Alliance, are blessed to have the greatest clients of any Registered Investment Advisor in the country. Our folks are wonderful people who we hate to disappoint. Know that even if you’re retired, as long as your distribution stays at its current rate, you can easily go a year or more with your current monthly withdrawal without impairing your financial and retirement future. This means you can continue your distributions and allowing your capital the time needed to realize the inevitable large upside recovery! Please give me or any of our directors a call at (859) 223-6333 if you have any questions and know that our thoughts and prayers are with you and your families. We’ll get through this together, as we always have. Soon (within the next thirty days) after we’ve hit the backside of the infection, life will return to normal and we’ll all be reminded of what we have and how truly blessed we are.
C. Kelly Buckley, MBA, CFP®
Managing Director for Asset Management
Spectrum Financial Alliance, Ltd., L.L.C (“Spectrum”) is a Registered Investment Advisor with its principal place of business in the State of Kentucky. Spectrum and its representatives are in compliance with the current registration and notice filing requirements imposed upon Registered Investment Advisors by those states in which Spectrum maintains clients. Spectrum may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Use of various indices in Spectrum’s account performance report is for comparative purposes only. We believe the results of the indices contained herein to be accurate, but we cannot guarantee the accuracy of such information. The volatility of the indices may vary due to diversification and/or other factors. All performance results shown are net of Spectrum’s management fees, which vary from 0.9% – 1.50% per annum (as disclosed in Spectrum’s Form ADV Part 2). Fees may be negotiable based on many factors including potential referrals, relationship to a current Spectrum client, future likely additions to the account, etc. The performance results also reflect the reinvestment of any dividends, capital gains, other earnings, and the subtraction of applicable fees. Spectrum does not make any representation that client accounts will or are likely to achieve returns similar to those shown above. Clients and/or prospective clients should understand that PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RESULTS. For additional information about Spectrum Financial Alliance, including fees and services, send for our disclosure statement of Form ADV Part 2 using the contact information herein. Please read the disclosure statement carefully before you invest or send money.