By Nathan Bennett CFP®, CBEC®, ChFC®, CLU®, Summit Co-Founder
All one can say about 2020 so far is, “Unbelievable!” (Actually, I could use some more descriptive words, but they are not very professional … and you may have already used them yourself to describe 2020!) The coronavirus pandemic has been like nothing we have seen in our lifetimes. The loss of life is staggering, and the strain on our medical system and essential workers has been profound. Our hearts grieve for those who have lost loved ones, and overflow with gratitude for those who are putting their lives on the line to serve us. So much of life has been disrupted, and the effects have been felt by everyone.
At the end of February, I stood in front of 400 clients at our Summit Symposium and gave brief comments about the virus and the market movements. At that moment, the virus was in its embryonic stages in the U.S., and the equity markets had only begun to tremble. I referenced several previous pandemics (SARS, H1N1, Zika, etc.), and how we had not only survived them, but went on to thrive thereafter. The implication was that although serious, we anticipated something similar with COVID as well. After all, it was far less deadly than some of those nasty bugs from days gone by.
Looking back, that assessment seems silly given the mayhem that was to come. Complete economic shutdowns, disastrous outbreaks in New York and elsewhere, and 3-month shelter-in-place orders were mere weeks away. We all grew to know what “bending the curve” meant, and obtaining masks and toilet paper became a critical mission. Truly unbelievable.
The markets couldn’t help but be affected by the pandemic and its attendant economic shutdown. As measured by the S&P 500, the U.S. equity markets fell 34% in just 33 days – a decline the swiftness of which had never occurred1. Unemployment skyrocketed, and all clarity around the earnings of public companies evaporated. By late March, investors were in full panic mode.
In response, the government stepped in with shock-and-awe stimulus packages from Congress and the Fed. While one can argue the long-term consequences of their actions, there is little question that they calmed a fearful marketplace. As social distancing began making progress on the virus and government stimulus took hold, markets began an uncanny rebound. Against all odds, the S&P 500 posted its best 50-day runup ever off the March lows2. At the end of June, it sat less than 10% below its market peak. Truly unbelievable.
There was a teachable moment in all of this. Accurately predicting the short-term movements in the equity markets is madness! There must be thousands of Economists and Market Strategists at money management firms around the world. Not one of them predicted what occurred in the last six months. Yet, I have been invited to countless webinars with each firm touting their market strategist and their “forecast” for the second half of 2020. I promise not to make life altering decisions with your hard-earned savings based on an economist’s outlook for the next six months!
Thankfully none of you are investing for the next two quarters. With COVID cases spiking again, social unrest rippling across our society, and a bitterly partisan election in the offing, there will be plenty of fear reported in the months ahead. Markets could have some volatile days and weeks—but then again maybe not—and there is freedom in not needing to know. Here’s what I do know:
• The path for equities in the next 3-6 months is unknowable and trying to time entry or exit in those markets as a result of something unknowable seems irrational.
• The 10 Year Treasury Bond offered an interest rate of 0.66% at the end of June3. Few (if any) of my clients can reach their financial goals at a rate of return this low.
• While forecasting the earnings and dividends of public companies is a mystery while the economy is in the grips of the pandemic, the dividend yield of the S&P 500 is currently 1.92%4, almost three times the yield on the 10 Year Treasury. Thus, if stocks go nowhere for the next 10 years (historically unlikely given their long-term averages5), the dividends alone would dramatically outperform the safety of treasuries.
• Volatility is a real possibility with COVID running amok, social unrest, and an election cycle looming. Having a plan for money that might be needed in the short term is prudent. However, moving long-term investments based on short-term volatility continues to be a bad idea.
If your goals have not changed, I invite you to tune out the noise and keep focused on the long run. Successful investors act continuously on their plan; failed investors react continually to the markets. We view it as our mission to help you be the former and avoid becoming the latter!
1 Fastest decline of that magnitude in US market history – Nick Murray Interactive 7/1/2020
2 Best 50-day runup in the S&P 500 per Nick Murray Interactive, 7/1/2020
3 June 30th yield on 10 Year Treasury – U.S. Department of Treasury
4 Yield on S&P 500 June 2020 – YCharts
5 Dalbar study of S&P 500 over 30 years ended 2019 returned 9.96% annually, assuming 0% is historically unlikely
The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note an investor cannot invest directly in an index.
Nathan Bennett is a registered representative and investment advisor representative of Securian Financial Services, Inc. TR#3152263 DOFU 07/2020