Weekly Market Commentary 7/27/20

Weekly Market Commentary 7/27/20

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

Weekly Financial Market Commentary

July 27, 2020

Our Mission Is To Create And Preserve Client Wealth

Where are we on vaccines and treatments?

During 2020, the United States government has spent more than $13 billion on Operation Warp Speed (OWS), which is focused on accelerating the development of vaccines and treatments for COVID-19, according to The Economist. The United States is not alone. Governments around the world are funding similar research.

The Economist reported, “…with the eagerness of the pharma sector to find treatments, along with the broad range of investments made by OWS (as well as other governments), there has been a lot of progress in the search for tests, drugs, and vaccines…Even the master of caution on vaccines, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, thinks a signal of vaccine efficacy might arrive in September.”

Any progress on treatments and vaccines is welcome news. Last week, there were more than 4 million confirmed COVID-19 cases in the United States, and the number of deaths rose above 1,000 a day, reported Joe Murphy and colleagues at NBC News. Late in the week, the number of new cases in Arizona, Florida, and South Carolina appeared to be trending lower, according to data from the Coronavirus Research Center at Johns Hopkins.

The resurgence of the virus may be one reason for the decline in U.S. stock markets last week. The Nasdaq Composite Index delivered back-to-back losses for the first time in more than a month, while the Dow Jones Industrial Average and the Standard & Poor’s 500 Index finished the week slightly lower, reported Ben Levisohn of Barron’s.

It’s difficult to pinpoint the exact cause of the drop because there were many possible drivers. For instance, the Department of Labor reported the number of new unemployment claims increased, after 15 weeks of declines. Markets may have been concerned about increasing unemployment numbers when the extra $600 in weekly unemployment benefits expires at the end of this week. Congress has yet to agree on whether or how to extend benefits.

In addition, earnings have been less than stellar – as expected. Last week, 26 percent of companies in the Standard & Poor’s 500 Index had reported second quarter results. The blended earnings, which combine actual results for companies that have reported with the estimated results for companies that have not yet reported, were down 42.4 percent, reported John Butters of FactSet.

There is little doubt the virus has wrought economic havoc. Let’s hope we find a vaccine soon. Future generations may think about COVID-19 the way we now think about polio, measles, and rubella.

Just For fun. The terms money and currency are often used interchangeably. However, Andrew Beattie of Investopedia pointed out, “According to some theories, money is inherently an intangible concept, while currency is the physical (tangible) manifestation of the intangible concept of money. By extension…money cannot be touched or smelled. Currency is the coin, note, object, etc…”

See what else you know – or don’t – about money by taking this brief quiz:

  1. Which of the following was once used as currency?
    1. Tea bricks
    2. Knives
    3. Animal skins
    4. All of the above

 

  1. Which was the first animal to appear on a U.S. coin?
    1. An eagle
    2. A buffalo
    3. A jackalope
    4. A ring-necked pheasant

 

  1. What were nickels made of during WWII (1942-1945)?
    1. Nickel
    2. Metal alloy
    3. Steel
    4. Leather

 

  1. What is chrometophobia?
    1. Fear of thinking about money
    2. Fear of spending money
    3. Fear of touching money
    4. All of the above

 

Weekly Focus – Think About It
“A nickel ain’t worth a dime anymore.”
–Yogi Berra, Professional baseball player

 

Answers:

  1. D – All of the above (Tea bricks, Knives, and animal skins)
  2. A – Eagle
  3. B – Metal alloy
  4. D – All of the above (Fear of thinking about money; fear of spending money; and fear of touching money)

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

 

https://www.economist.com/united-states/2020/07/18/donald-trump-is-hoping-for-a-covid-19-treatment-by-november (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/07-27-20_TheEconomist-Donald_Trump_is_Hoping_for_a_COVID-19_Treatment_by_November-Footnote_1.pdf)
https://www.nbcnews.com/health/health-news/coronavirus-deaths-united-states-each-day-2020-n1177936
https://coronavirus.jhu.edu/data/new-cases-50-states (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/07-27-20_JohnsHopkins-Daily_Confirmed_New_Cases-Footnote_3.pdf)
https://www.barrons.com/articles/tech-stocks-tanked-blame-it-on-the-value-of-the-dollar-51595638215?refsec=the-trader (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/07-27-20_Barrons-Another_Reason_Tech_Stocks_Tanked-A_Weak_Dollar-Footnote_4.pdf)
https://www.dol.gov/ui/data.pdf
https://www.cnbc.com/2020/07/23/weekly-jobless-claims.html
https://insight.factset.com/sp-500-earnings-season-update-july-24-2020
https://www.cdc.gov/globalhealth/immunization/default.htm
https://www.investopedia.com/articles/07/roots_of_money.asp
https://www.msn.com/en-ca/money/topstories/strange-things-used-as-currency-around-the-world/ar-AAjl3UB?li=AAgh0dA
https://www.usmint.gov/learn/kids/coins/fun-facts
https://turbo.intuit.com/blog/relationships/chrometophobia-fear-of-money-4734/
https://www.brainyquote.com/quotes/yogi_berra_106829

Weekly Market Commentary 7/27/20

Weekly Market Commentary 7/20/20

Is the United States economy recovering or faltering?

It depends on who you ask and which data you consider. For example, last week, the Department of Labor reported fewer people applied for first-time unemployment benefits during the week of July 11. That could be a tick in the positive data column. Week-to-week the number declined from 1.31 million to 1.30 million. The lackluster decline could be a tick in the negative data column since the long-term weekly average is about 20 percent of that number.

There was positive news about progress on COVID-19 vaccines last week. The hope it inspired was tempered by reports the number of new cases continued to grow in a majority of U.S. states.

 Concern about the resurgence of the virus negatively affected consumer sentiment during the first half of July. The University of Michigan Consumer Sentiment Survey reported, “The promising gain recorded in June was reversed, leaving the Sentiment Index in early July insignificantly above the April low (+1.4 points).”

Uncertainty is reflected in the divergent stories told by stock and bond markets.

The year-to-date return for the Standard & Poor’s 500 Index moved briefly into positive territory last week before finishing slightly down, reported Financial Times. That’s an impressive run for a benchmark that was down more than 30 percent in late March. Meanwhile, the tech-heavy Nasdaq Composite has been in positive territory for a while.

Last week, Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley said, “The bottom line, equity markets have been telling us growth is going to surprise on the upside.”

Bond markets have been less optimistic. Yields on U.S. Treasuries remain exceptionally low, suggesting investors continue to seek safe havens amidst uncertainty about the future. On January 2, 2020, 10-year Treasury notes yielded 1.88 percent. Last week, the yield was 0.63 percent.

On a recent earnings call, Jamie Dimon, chairman of JPMorgan Chase, shared his thoughts on the state of the economy. “Can I just amplify it? In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that’s true here…Savings are up, incomes are up, home prices are up. So you will see the effect of this recession; you’re just not going to see it right away because of all the stimulus…you’re going to have a much murkier economic environment going forward than you had in May and June, and you have to be prepared for that…”

Markets may remain volatile until the economic picture gains some clarity.

Stop making cents? 
You may not have noticed, but there is a coin shortage in the United States. National Public Radio explained:

“Supermarkets and gas stations across the U.S. are asking shoppers to pay with a card or produce exact change when possible. [A big box store] has converted some of its self-checkout registers to accept only plastic. [A grocery chain] is offering to load change that would normally involve coins onto loyalty cards.”

Social distancing, and other safety measures taken to slow the spread of COVID-19, also slowed the U.S. Mint’s coin production. In June, the Federal Reserve began rationing coins, and convened a task force to investigate the issue.

With coins in the public eye, it may be time to resurrect the ‘Kill the penny’ movement, suggested Greg Rosalsky of Planet Money.

In 2019, 60 percent of the coins produced by the U.S. Mint were pennies. The majority of the Mint’s coin-producing time was spent making about seven billion pennies. The problem is pennies cost more to produce than they are worth as currency.

According to the U.S. Mint’s 2019 Annual Report, “The unit cost for both pennies (1.99 cents) and nickels (7.62 cents) remained above face value for the fourteenth consecutive fiscal year.” In other words, the Mint lost more than $72 million making pennies last year.

How often do you use pennies and nickels?

 Weekly Focus – Think About It 
“Money often costs too much.”
–Ralph Waldo Emerson, Philosopher and essayist

Best regards,

Jack Reutemann, Jr. CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

Weekly Financial Market Commentary

December 9, 2020

Our Mission Is To Create And Preserve Client Wealth

Is the United States economy recovering or faltering?

It depends on who you ask and which data you consider. For example, last week, the Department of Labor reported fewer people applied for first-time unemployment benefits during the week of July 11. That could be a tick in the positive data column. Week-to-week the number declined from 1.31 million to 1.30 million. The lackluster decline could be a tick in the negative data column since the long-term weekly average is about 20 percent of that number.

There was positive news about progress on COVID-19 vaccines last week. The hope it inspired was tempered by reports the number of new cases continued to grow in a majority of U.S. states.

Concern about the resurgence of the virus negatively affected consumer sentiment during the first half of July. The University of Michigan Consumer Sentiment Survey reported, “The promising gain recorded in June was reversed, leaving the Sentiment Index in early July insignificantly above the April low (+1.4 points).”

Uncertainty is reflected in the divergent stories told by stock and bond markets.

The year-to-date return for the Standard & Poor’s 500 Index moved briefly into positive territory last week before finishing slightly down, reported Financial Times. That’s an impressive run for a benchmark that was down more than 30 percent in late March. Meanwhile, the tech-heavy Nasdaq Composite has been in positive territory for a while.

Last week, Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley said, “The bottom line, equity markets have been telling us growth is going to surprise on the upside.”

Bond markets have been less optimistic. Yields on U.S. Treasuries remain exceptionally low, suggesting investors continue to seek safe havens amidst uncertainty about the future. On January 2, 2020, 10-year Treasury notes yielded 1.88 percent. Last week, the yield was 0.63 percent.

On a recent earnings call, Jamie Dimon, chairman of JPMorgan Chase, shared his thoughts on the state of the economy. “Can I just amplify it? In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that’s true here…Savings are up, incomes are up, home prices are up. So you will see the effect of this recession; you’re just not going to see it right away because of all the stimulus…you’re going to have a much murkier economic environment going forward than you had in May and June, and you have to be prepared for that…”

Markets may remain volatile until the economic picture gains some clarity.

Stop making cents?
You may not have noticed, but there is a coin shortage in the United States. National Public Radio explained:

“Supermarkets and gas stations across the U.S. are asking shoppers to pay with a card or produce exact change when possible. [A big box store] has converted some of its self-checkout registers to accept only plastic. [A grocery chain] is offering to load change that would normally involve coins onto loyalty cards.”

Social distancing, and other safety measures taken to slow the spread of COVID-19, also slowed the U.S. Mint’s coin production. In June, the Federal Reserve began rationing coins, and convened a task force to investigate the issue.

With coins in the public eye, it may be time to resurrect the ‘Kill the penny’ movement, suggested Greg Rosalsky of Planet Money.

In 2019, 60 percent of the coins produced by the U.S. Mint were pennies. The majority of the Mint’s coin-producing time was spent making about seven billion pennies. The problem is pennies cost more to produce than they are worth as currency.

According to the U.S. Mint’s 2019 Annual Report, “The unit cost for both pennies (1.99 cents) and nickels (7.62 cents) remained above face value for the fourteenth consecutive fiscal year.” In other words, the Mint lost more than $72 million making pennies last year.

How often do you use pennies and nickels?

Weekly Focus – Think About It
“Money often costs too much.”
–Ralph Waldo Emerson, Philosopher and essayist

Best regards,

Jack Reutemann, Jr. CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

Friends and Clients,  I’ll be brief. All is well with our managed accounts

Friends and Clients, I’ll be brief. All is well with our managed accounts

Friends and Clients,

I’ll be brief. All is well with our managed accounts. Through July 15, the RFS pure aggressive growth model is up 15.98% for the year, while the S&P 500 index is down 0.13%. Essentially, we are beating the index by 16%. We hope you are pleased with that performance. As always, keep in mind that if you are invested in one of our models that blends with fixed income, your results will differ.

I have been getting a lot of phone calls and emails asking, “Jack, are we going to have another market crash? Should we just get out now?” I don’t think so. Not yet, anyway. We could have another 10 to 30% market sell-off between now and the election, and we are prepared for that. We take offensive positions when our indicators point in that direction. And when they point down, we don’t hesitate to play defense. In fact, our defensive strategy includes some offense because we take on short positions that profit handsomely in down markets. You all know firsthand what we did in March, when we established SPXS positions that produced positive gains as the market crashed.

The recent market rebound has been directly tied to improving economic numbers, and the perception that the CV-19 crisis is getting better. Unfortunately, the Johns Hopkins statistics (available for free everyday in the New York Times) do show a spike in Corona cases in the U.S. and throughout the world. Just yesterday, for example, new Corona cases in the U.S. totaled 77,217. Further spikes could negatively impact the market. We watch these stats daily.

I am “optimistically cautious,” and on full alert at the same time. The current political and racial discourse is destroying our country and our families, and we are in the middle of a very nasty Presidential election cycle. But at the end of the day, there is more good news than bad. Otherwise, the markets wouldn’t be going up.

As you have all heard me say on many occasions, “The only truth is supply and demand. Everything else is someone’s opinion.” There are well over 100 news commentators a day on all the major channels, all with an opinion. They don’t matter. Rule # 1 in technical analysis: the only truth is the “price.” 

Here’s my personal opinion: I hope the market does crash. We will make a fortune with our defensive shorting strategy, and a lot of ignorant investors will finally get the message, one more time: “buy and hold” is an academic, institutionalized falsehood, fabricated and promoted by the . . . for want of a better term, I’ll make one up …. “broker-dealer/mutual fund industrial complex.”

We’ve got your back. The RFS Team is doing, and will continue to do, a great job protecting your money.

Like most of you, I am working from home. Awfully quiet around here. Don’t hesitate to give me a call on my cell phone at 240-401-2355.

And, if you’re so inclined, you can always add funds to those we manage.

With kind regards,

Jack

 

John F. Reutemann, Jr., CLU, CFP®
Founder and CEO
Financial and Wealth Advisor
2273 Research Blvd., Suite 101
Rockville, MD 20850-3264
Phone: 301-294-7500
Fax: 301-294-7504
john.reutemann@rfsadvisors.com
www.rfsadvisors.com 

Check out our latest Weekly Market Recap

 Investment advice offered through Research Financial Strategies, a registered investment advisor.  Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC, headquartered at 18 Corporate Woods Blvd., Albany, NY  12211.  Purshe Kaplan Sterling Investments and Research Financial Strategies are not affiliated companies.

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How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

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Heads Or Tails?

Heads Or Tails?

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio > December 9, 2020 Our Mission Is To Create And Preserve...

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Memorial Day

Memorial Day

In honor of Memorial Day, we’d like to tell you a story about a man named Ben Salomon.Ben Salomon was a dentist. He went to school, got his degree, and started...

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Where Trillions Dwell

Where Trillions Dwell

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

Where Trillions Dwell

Back in the 1980s, a popular Wendy’s commercial featured a soon-to-be-famous elderly lady peering at a small piece of hamburger perched on a huge bun. She then asked:

Where’s the beef?1

 In the March 11, 1984, Democratic debate, Walter Mondale used the line as a knockout blow to fellow candidate Gary Hart.2 Watch the commercial here. Watch the debate segment here.

Today we can ask a similar question:

Where’s the cheddar?

 With the huge market sell-off in March and April, we know that those who sold stashed a massive amount of cheddar or moolah. Unless they used it in the ensuing rally, it’s still there, somewhere, just sitting.

A little research reveals that a gigantic amount of bread (bigger perhaps than the bun holding the burger shamed in the Wendy’s commercial) is … to mix our metaphors … parked on the sidelines. Sitting. Waiting. Waiting for what?

On June 22, Jesse Pound wrote an article for CNBC. The article’s title pretty much summed up its contents: “There’s nearly $5 trillion parked in money markets as many investors are still afraid of stocks.”3 As pointed out by Mr. Pound, more than $4 trillion flooded into money markets as investors sold anything not nailed down. Money market assets peaked during the week of May 13, setting an all-time record of $4.672 trillion. Recent outflows, he said, still leave 90% of that amount waiting on the sidelines.4

Mr. Pound cites Ryan Detrick, a market strategist at LPL Financial, who noted that “after the 45% bounce, give or take, in the S&P, we haven’t seen really the big part of the retail crowd come back in. … It kind of shows again that a lot of people are really still on the sidelines.”5

Mr. Detrick revealed even more staggering numbers in a recent Tweet:
$15.4 trillion cash in bank accounts right now, a new record.

Recently up 15% the previous 3 months, another record.

Combined with the record of nearly $5 trillion in money markets and safe to say there’s a lot of cash on the sidelines.6

Another Stash of Cash

Another trillion dwells in orphaned retirement accounts. And this amount is likely to grow because of the massive loss of jobs in the recent virus crisis.

Many companies set up 401(k) plans for their employees. The employee contributes to the plan by way of paycheck deductions. In some plans, the employer contributes a certain percentage of the employee’s wages. Over time, these plans can grow significantly, the gains free from tax until the employee starts withdrawing funds upon retirement.

There’s a slight problem. As employees change jobs, they often forget about 401(k) plans with their previous employers. As reported by Mitch Tuchman in a June 2020 MarketWatch article:

Over a recent 10-year period as many as 25 million people in workplace plans changed jobs and left behind a 401(k) plan. Millions more have left behind more than one, according to a GAO study.7

Millions of people who lost their jobs during the pandemic will one day find new jobs, most likely with different companies. Yet their old 401(k)’s with the previous employers might just sit there, with no one paying any attention to any strategy of investment.

Mr. Tuchman offers some sound advice: roll those old 401(k) accounts into an IRA account. That way, you—or your financial advisor—can make rational decisions about staying in the market, getting out of the market, or getting back in the market when the drop appears over. Beware, Mr. Tuchman advised, and make certain you complete a true rollover:

Make sure you request a rollover, not a distribution. If you take money out of your 401(k) plan you will be liable for taxes and, possibly, penalties for early withdrawal. Once the money is transferred you can begin to choose new investments in your IRA that better fit your current age, risk tolerance and retirement goals.8

Fear of Fear Itself

It looks as if fear accounts for this vast amount of wealth sitting on the sidelines. If I get back in the market, I think, it’ll no doubt crash. After all, I say to myself, look at the massive unemployment around me. How can the market possibly go up, I wonder?

Millions of sidelined investors asked those questions as the stock market recovered most of its pandemic losses. Granted, more convulsions loom just over the horizon. But it makes little sense to sit there and watch potential gains pass you by.

Protecting Against Crashes: Our 1-2-3 Approach

At RFS, we protect our managed accounts against the ravishes of stock market crashes.

First, we watch your account, every minute of every day.
Second, we use technical analysis and active management to decide when to deploy your funds … and when to pull them back into cash.
Third, we use trailing stops to guard against crashes.

A Word About Trailing Stops

A trailing stop is a type of stop-loss order that combines elements of both risk management and trade management. Trailing stops are also known as profit protecting stops because they help lock in profits on trades while also capping the amount that will be lost if the trade doesn’t work out.

Here’s how it works. When the price increases, it drags the trailing stop along with it. Then when the price finally stops rising, the new stop-loss price remains at the level it was dragged to, thus automatically protecting an investor’s downside, while locking in profits as the price reaches new highs.

A trailing stop-loss is a way to automatically protect yourself from an investment’s downside while locking in the upside.

For example, you buy Company XYZ for $10. You decide that you don’t want to lose more than 5% on your investment, but you want to be able to take advantage of any price increases. You also don’t want to have to constantly monitor your trades to lock in gains.

You set a trailing stop on XYZ that orders the position to automatically sell if the price dips more than 5% below the market price.

The benefits of the trailing stops are two-fold. First, if the stock moves against you, the trailing stop will trigger when XYZ hits $9.50, protecting you from further downside.

But if the stock goes up to $20, the trigger price for the trailing stop comes up along with it. At a price of $20, the trailing stop will only trigger a sale if the stock drops below $19. This helps you lock in most of the gains from the stock’s rally.

I Don’t Have Any Positions

When talking to your friends, you might say you don’t currently have any positions in the stock market.

But you do.

Your position is cash. And it forms a part of a gigantic ocean of liquidity that will one day seek and find a home. The home it finds is most likely to be the U.S. stock market. The wise approach is to have some of your wealth in cash, some in bonds, and some in stocks. Your risk tolerance will govern the percentages for each type of investment. But you really ought to have some positions other than a 100% position in cash.

Give Us a Call

Call Jack at (301) 294-7500, and we can start figuring out a sensible plan designed just for you.

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