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Market Update: March 31, 2020

April 3, 2020

During this difficult time, I want to offer a toast to each of us.  We are all sacrificing to care for ourselves and others.  That said, our team is focused on – and is energized by – assisting you. Call us with anything.

Investment Update

Many stocks posted -23% from January 1 to March 31, 2020. Along the way, as represented by the Dow, stocks increased in the early part of 2020, hitting a record high on February 12, 2020.1  Then they dropped -35% from that high as of March 23, 2020, before regaining current levels.1

As you know, we’ve taken several actions on your behalf, as suitable:

  • Continued our work toward helping you build and maintain a strong financial plan.

  • As suitable, we purchased select stock funds on your behalf as many as four times since the downturn began.

  • When many investment-grade bonds exhibited valuation jitters approximately two weeks ago, we sold modest positions into an FDIC-insured cash position to diversify and to enhance your cash reserves for planned or unexpected withdrawals.  The Federal Reserve Board has begun buying investment-grade bonds, which has generally stabilized that market.  We plan is to reinvest the FDIC-insured cash once the economy stabilizes.

The Dow’s low of -35% on March 23, 2020, is coincidentally close to the average bear market low of -38%.2 However, we have not yet seen bottoming action in the stock market, which generally consists of re-testing lows, and we strongly suspect there is more volatility ahead.  If that occurs, as you know, it is critically important that we not sell stocks when they are low – there is no good way to regain that value.  During the 2008/2009 downturn, two of our clients completely sold their stocks, with the second one selling out three days before the market bottomed.  As long as you continue to own shares, you have the opportunity to ride the values back up.  Please call us any time for context on your financial plan and the markets.  We are here to support you.

While each bear market has a different catalyst, they have uncertainty in common.  For example, during the 9/11 bear market, for four days I came into the office, and the New York Stock Exchange was closed.  We didn’t know if more planes would fly into our buildings.  We didn’t know if we would be poisoned by anthrax.  During the 2008/2009 bear market, after Lehman Brothers fell, we didn’t know how many big banks would fail and over what time period.

During the current crisis, the Federal Reserve Board (FED) and the U.S. government have been extremely active in supporting our economy. My understanding is that they view this economic crisis as severe but temporary.  Their goal is to keep the economic underpinnings in place as we work our way through the health crisis. Some clients have asked us if this is another Great Depression; we believe it is unlikely.  While every downturn is different, going into the Great Depression, the FED, in an effort to curb stock speculation, increased interest rates rather than offering support through reducing them. And the New Deal under Franklin Roosevelt did not start until 1933, four years after the 1929 stock market crash. In 2008/2009, we benefitted from a very supportive FED and active U.S. government, and our understanding is that many economists feel that these factors averted a depression.  Our outlook is that the FED and U.S. government will take even more action if they think it is warranted.

While severe economic dislocations are challenging, they can also bring opportunities. Beyond the opportunity to buy stocks at what appear to be attractive prices, there is a long list of potential opportunities that may benefit you or a friend or loved one. Click here for a list for your easy reference. As always, please let us know your comments and questions. And, stay well.

Footnotes

  1. Yahoo Finance, Dow Jones Industrial average, Feb 12 – March 23, and Feb 12 – March 31.
  2. https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d

Definitions: Dow Jones Industrial Average: The Dow Jones Industrial Average is a composite of 30 stocks spread among a wide variety of industries, such as financial services, industrials, consumer services, technology, health care, oil & gas, consumer goods, telecommunications, and basic materials. The index is price weighted (component weightings are affected by changes in the stocks’ prices).  Other definitions:

  • Dow Jones Commodity Gold: The Dow Jones Commodity Index Gold is designed to track the gold market through futures contracts.

  • S&P 500: Representing approximately 80% of the investable U.S. equity market, the S&P 500 measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested.

  • MSCI EAFE (Europe, Australasia, Far East) Index: A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2, 2014, the index consists of 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

  • BBgBarc Corporate Bonds, 1-3 Yr: The index measures the performance of Investment Grade securities which are selected by a Market Value process with a maturity of 1-3 years. The Index includes publicly issued U.S. dollar-denominated corporate issues that have a remaining maturity of greater than or equal to 1 year and less than 3 years, are rated investment grade (must be Baa3/BBB- or higher using the middle rating of Moody’s Investor Service, Inc., Standard & Poor’s, and Fitch Rating), and have $250 million or more of outstanding face value.

  • BBgBarc Municipal Intermediate 5-10 Yr: The Bloomberg Barclays Quality Intermediate Municipal Bond Index tracks the performance of municipal bonds issued after December 31, 1990, with remaining maturities between 2 and 12 years and at least $5 million in principal outstanding.

Important information.  Past performance is no assurance of future results. Laurel Wealth Planning is a registered investment adviser with its principal place of business in the State of Minnesota. A complete list of all recommendations will be provided if requested for the preceding period of not less than one year.   It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. The information on this and the previous page is not intended as a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Expressions of opinion are as of this date and are subject to change without notice.  Opinions expressed are those of Laurel Wealth Planning and are subject to change, not guaranteed, and should not be considered recommendations to buy or sell any security. This information is not intended for a solicitation or an offer to buy or sell any security referred to herein.  Investments mentioned may not be suitable for every investor.  Investing involves risk and investors may incur a profit or a loss, including the loss of all principal.  Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. This may result in greater share price volatility. These risks are heightened in emerging markets. Diversification does not assure profit or protection against loss.  Bond prices and yields are subject to change based upon market conditions and availability.  If bonds are sold prior to maturity, you may receive more or less than your initial investment.  Holding bonds to term allows redemption at par value.  Bond prices and interest rates have an inverse relationship.  Dividends are not guaranteed and must be authorized by the company’s board of directors. The Bloomberg Commodity Index is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position.  Any reference to a chart, graph, formula, or software as a source of analysis used by Laurel Wealth Planning staff is one of many factors used to make investment decisions for your portfolio.  No one graph, chart, formula, or software can in and of itself be used to determine which securities to buy or sell when to buy or sell them, or assist any person in making decisions as to which securities to buy or sell or when to buy or sell them.  Any chart, graph, formula, or software used is limited by the data entered and the created parameters.

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