In messages to clients this year, I have tried to make sense of the “noise” surrounding markets and impacts on investors as the headlines swing from one end of the extreme to the other. The markets crumbled going into the last few weeks of 2018 as negative headlines crossed the airwaves causing some investors to throw in the towel on stocks only to witness, after the calendar flipped into 2019, the market’s valiant comeback. In my February message, I told clients the following:
“2019 has surely been a sight for sore investors’ eyes and the relief rally is warranted in our view…But things can change quickly as we climb the everlasting “worry wall” year-in and year-out. We must always focus on long-term investment s uccess and on maintaining a disciplined approach along the way. The only way to be “right” when investing is to be disciplined, properly allocate investment assets, and stick to the plan” - (2019 Market Update: Recovery on the Way)
Nearing the start of 2019, we had believed that the markets overshot the downside and that upside relief was well-deserved. Having said that, by May 3rd of this year, in a follow-up message to clients, I discussed how complacency in investing was risky and how it was dangerous to simply ignore all of those negative issues that had so many investors so very worried just a few months prior because they simply weren’t making headlines any more. I went on to say that complacency is not strategy and an outsized, very short-term rally like the one we saw should have been viewed by investors as an opportunity to become more cautious, take some profits, and rebalance portfolios. In fact, in that message, I disclosed that the Investment Advisors at Capstone had begun that exact process of reassessment and were making practical adjustments to client portfolios as a result of the huge move in stocks. - (Complacency Is Not A Strategy)
Then, there was “Part II” of my complacency risk message on May 13th. Volatility had, once again, reared its ugly head as worries about trade, tariffs, and China were back on the table and the media was in a frenzy as the headlines ran rampant after China “Broke the Deal”. Markets, at that time, had lost 5% as many economists and strategists were calling for slowing economic growth and some even began throwing around the “R-Word” (recession) as slower growth crept into global economic reports. I ended my message (after disclaiming that I CANNOT predict the future and that my posts, which were only 10-days apart, were a result of “fluky timing” and not prognostication) by saying that it was conceivable that the tariff fight was alive and well, volatility will persist for a while, and as stocks ebb and flow, it was most important to focus on being cautious and responsible and not get complacent! - (Market Update: Complacency Is Not A Strategy Part - II)
Since “Complacency Part II”, stocks sky-rocketed as investors became more and more thick-skinned and less concerned about President Trump’s tariffs and overall rhetoric regarding trade, the focus moved squarely back onto the Federal Reserve and interest rates. After holding down a very hawkish stance at the end of 2018, Fed Chairman, Jerome Powell, turned into a dove as pressure from the markets and the White House to cut interest rates for the first time in a decade mounted. The Fed, as the pool of quantitative easing filled with one “rate cut penguin” after another, indeed, did cut rates by .25% in its July 31st meeting. That rate cut was accompanied, however, with Powell’s post-meeting statement that projected a non-committal stance regarding future cuts and, with that punch bowl nowhere in sight, stocks immediately began to sell-off as volatility spiked last week.
The title of this Post is “Trees Don’t Grow to the Sky” which is a message Capstone has been sharing since April in an effort to raise awareness about recognizing good times to adjust investments. Trees stop growing eventually, begin to age, and then risk falling down…In investment portfolios, it’s important to have many “trees” and to trim some limbs from time-to-time – don’t let the tree get too big and fall or, worse, don’t ever feel the need to cut it down yourself.
The stock market got shredded today on more negative trade talk headlines and we feel that being cautious on stocks over the near-term is sensible. Although we know that market cycles will do their thing and that experiencing periods of declines in portfolios is simply part of investing, we will remain focused on success over years and not days or weeks. We have made adjustments to portfolios over the last few months that we feel will allow us to truly ride out volatility, remain fully invested, and continue to focus on long-term investment success while preventing panic when markets grow like trees.
Whether you are a client of Capstone or not, if you have any questions or concerns, we’re here to help…please feel free to contact us. We can be reached at 888-587-7526 (Toll Free) or at (570) 587-7800 (Office Direct).
(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)