Talking Points – June 2020

June 17, 2020 – Did Your Retiree Clients Go To Cash?

We often discuss the emotional decisions investors make, particularly during times of increased market volatility. According to the chart below more than 30% of individual investors sold all of their equity holdings during the recent market volatility. This is an amazingly high number. These investors have already faced the challenging question of when to get back in as stocks have quickly recovered.

Source: Wall Street Journal

There are many small measures, that when combined, help keep investors focused on the long run while avoiding the shorter-term noise. We can’t mention them all in this brief note. However, from an asset management perspective we believe that owning high quality assets with lower volatility and utilizing a disciplined risk management plan are big first steps in avoiding making the dramatic all in and all out emotional decisions it appears many investors have recently done.

June 10, 2020 – Stock Market Strength Is Typically Positive Going Forward

Stocks have surged higher in recent weeks at a speed no one predicted. While most stocks have advanced, it has been the more volatile high beta stocks that have led the way. In just the past week, they have outperformed the low beta index by more than 30%!

As a result of this broad based and explosive move, we are now seeing a very high level of stocks trading to a new 65-day high.

Source: Strategas

By just about any measure stocks are extended and overbought. That can sometimes mean a pause or even correction is needed. However, this type of momentum thrust has historically been associated with very strong returns looking out 6-12 months. 

This is no doubt one of the most amazing stock and economic periods ever. This type of environment can cause investors to make all kinds of emotional and short-term decisions. There is no more important time than now, to be sure that you are following a disciplined long-term approach.

June 3, 2020 – Have The Winners Grown Too Big?

Recent years have been dominated by technology and specifically a handful of the largest companies that most people use on a daily basis. As a result, the weight of the five largest stocks in the S&P 500 has now grown easily to the largest on record.

Source: Goldman Sachs

Our next chart tells the story of how much the largest stocks historically change as trends change.

Source: @CharlieBilello

We own most of the current stocks on the top ten list, so clearly we continue to like their prospects. However, we must keep in mind that while their size is an advantage in some ways, it can also make continued above average growth difficult. There will always be smaller and more nimble firms looking to chip away at the domination exhibited by the largest companies in recent years. This can create both opportunities and risks to monitor in the years ahead.

Source: Greg Towner, CFA, CMT