stock market returns 2020, investing, san diego financial planning, financial advisor, retirement

Q2 2020 Market review

 Almost as quickly as the market dropped in Q1, the market had a strong rebound in Q2. Though it hasn’t yet reached its prior highs, it covered a lot of lost ground very quickly, especially considering the elevated amount of uncertainty surrounding us. To illustrate just how volatile the stock market has been this year, below are numbers for the CBOE Volatility Index (VIX), which measures volatility for the S&P 500, the higher the number the higher the volatility. CBOE Volatility Index (VIX)Year                 Average          High2020                32.8                 82.692019                15.39               25.452018                16.64               37.322017                11.09               16.042016                15.83               28.14 In Q2 the US market was up over 22%, international markets were up over 15% and emerging market gained over 18%. Despite low interest rates and a rallying stock market, bonds also made money with domestic bonds up almost 3% and international bonds up close to 2%. For a detailed Market Overview, click here.  Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

Economy, Stock Market, Q2 2020 Economic Numbers

brace yourself - economic numbers and the stock market

When the recent pandemic seemed to shut down the economy overnight there was much talk about what it would mean for the stock market. I spent a lot of time reviewing information and listening to trusted sources for insight. Of course, no one knew for certain what the outcome would be (and we still don’t as the pandemic isn’t over). While predictions were endless, many tried to guess what the market would do and how it would recover. Economists and money managers used many letters to represent the shape that the downturn and eventual recovery of the economy and market (which often don’t move in sequence with each other as we’ll see) would take, common letters quoted were V, U, L and W or variants thereof. Thus far the V shape seems to be the best fit description for the stock market, but that could change and morph into any wonky shape. The drop:The S&P 500 dropped over 33% from February 19th to March 23rd, just 32 days and the fastest drop of this magnitude in history. The rebound:The S&P 500 has gained over 45% from March 24th to June 8th, closing in on its February highs.  While I noted in my March newsletter that past health crises tend to have fairly quick recoveries, I didn’t imagine we’d experience the fastest drop and rebound in history, especially given the magnitude of the economic effects of Covid-19. How is it that the market rebound has been so quick when unemployment hit the highest levels since the great depression, earnings are down double digits and a vaccine hasn’t yet been developed? There isn’t a perfect answer but one thing I’ve learned in my experience is that markets tend to overreact in both directions. This is part of the reason the stock market can be so uncertain in the short run, yet a good investment for long-term investors with well-designed strategies. Though the current environment is unique in its own way, the disconnect from the economy and the stock market is normal as economic numbers provide information in hindsight while markets are generally forward-looking. Let’s look back at the financial crisis recession of 2008-2009. In that recession, the S&P 500 bottomed on March 9th, 2009 after falling over 55% from its prior peak. The recession didn’t actually end until several months later in June of 2009 and the National Bureau of Economic Research didn’t officially announce an end to the recession until September of 2010, well over a year into the market recovery. Here are two recent examples of economic and market disconnect: - On April 29th when the Commerce Department announced that in Q1 the economy shrank by an annualized rate of almost 5%, the S&P 500 rose 2.66%. - On May 8th the Bureau of Labor Statistics announced that more than 20 million jobs were lost in April and we had the highest unemployment rate since the Great Depression, yet the S&P 500 was up 1.71%. It’s clear that economic information can be disconnected from the market, and if you wait for an all-clear signal based on economic data to inform your investment decisions you’re almost assured to miss out. That being said, brace yourself as Q2 GDP numbers are widely expected to be dismal, still, knowing how the market will react in the short-term is a guessing game.     Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

Buying Apple, Amazon, Microsoft. Getting rich from stock

woulda, coulda, shoulda

It’s not uncommon for me to hear stories of regret or disappointment when talking with people about their investment history. The reasons for this vary widely but a frequent one relates to what people feel are missed opportunities. It often sounds like this:“I wish I would have bought Amazon 20 years ago”“I owned Apple years ago but sold it”“I almost bought Microsoft”These reactions are natural and in hindsight these decisions are easy to criticize, but let’s look a little deeper at the ride that the three largest companies in the world by market cap have had. Amazon- Initial public offering on 5/15/1997- Amazon went up over 900% in 1998- The stock price fell more than 94% in 2000-2001 and it took over 8 years for the stock to rebound to its prior high- Its first profitable year was 2004- An investment of $1,000 would be worth over $1.3M today Apple- Initial public offering on 12/12/1980- Apple stock went down over 81% when the tech bubble burst and fell 51.9% on September 29, 2000 alone- An initial investment of $1,000 would be worth over $800K today Microsoft- Initial public offering on 3/13/1986- Microsoft was profitable well before the IPO but Bill Gates wanted to retain more control before going public- During the “lost decade” of 2000-2010 when the S&P 500 was down about 9% over that period, Microsoft fared even worse, down over 36% in that decade. The S&P 500 suffered a dip of over 55% while Microsoft dipped almost 69%- Microsoft stock had a period of over 9 years from a peak price to a bottom price and it took more than 5 additional years for it to get back to that prior peak, for a painfully slow 14+ year ride- An initial investment of $1,000 would be worth over $2.5M today As you can see, all of these companies have dealt with major ups and downs which can explain why many people who may have owned them at one point didn’t stick around for the entire ride as the future is impossible to know. In my experience as a financial advisor, I’ve never met someone who’s wealth came from buying that one lucky stock that made them into a multi-millionaire. I’m sure it happens (so does winning the lottery), but it’s not very common. The closest thing I do see as it relates to benefitting from one specific stock are employees who had the good fortune of working at companies like these before they became the companies they are today, and received stock options as part of their compensation. I attribute this success to people being fortunate in their career, not due to their investment genius. Being in San Diego, the most common example I see is those who started working at Qualcomm years ago and have benefited from that company’s significant growth. So, while I haven’t met anyone personally who became rich from investing in the right company at the right time, I have met many people in which the stock market has played a key role in helping them become millionaires. Their success can be attributed to their discipline of being consistent, long-term investors.   Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

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Retirement Planner in San Diego

 

Advisory services offered through Arbor Point Advisors. Securities offered through Securities America, Inc., Member FINRA/SIPC. Arbor Point Advisors and Securities America are separate companies. This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed. CA Insurance #0E88557

Advisory services offered through Arbor Point Advisors. Securities offered through Securities America, Inc., Member FINRA/SIPC. Arbor Point Advisors and Securities America are separate companies. This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed. CA Insurance #0E88557​

Rancho Bernardo Financial Planner