The Northern Star Newsletter 5/7/20 - Economic Normalization Near?
Message from Jon
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Prudence and Caution are keys right now!
We have been watching this interesting and misleading tug-o-war type action unfolding on the markets where we seemingly witness the indexes demonstrating a positive sign and direction when they should be showing the very opposite in our opinion. This is causing a great many investors to get anxious and start to question their current positions and even take action to buy in for fear of missing out on a low in the markets...caution is key here.
The kids in the back seat are asking about every mile, "Are we there yet, are we there yet?" only to mistake a rest-stop as the destination and get all excited to be done riding in the car. Then you see their faces when you tell them where they are and that they have to get back in and drive another 3 hours.
Here is a direct pull from Bloomberg. The FANG Index is comprised of Apple, Facebook, Google, Amazon, Alibaba, Tesla, Baidu, Netflix, Twitter, and Nvidia.
The Fang Index is up 11.9% YTD through 5/5. The S&P 500 which is market cap weighted where FB, Microsoft, Apple, Amazon and Google represent approximately 20% of the index is down 11.46% YTD. The equal weighted S&P Index starts each year with each stock representing 1/500 of the index. This deemphasizes the market cap weight. In this case, the index is down 19.1%. The Russell 2000 index, which represents small cap stocks, is still down 23.9%.
It is our opinion that the market is preparing for a "V-Shaped" recovery while there is growing evidence daily that it is likely going to be a "U-Shaped" recovery that for many sectors and the companies in them, will take years to recover and not months as originally thought. Do not mistake this statement as the markets will not present opportunities to invest and trade during this time, because that will certainly not be the case at all in our minds.
When you are presented with a bear market coupled with a recession on top of a global pandemic, you must exercise caution, prudence, and be willing to change your thought process and your approach when the facts change, and at this period in our lives, the facts seem to be changing daily.
Focus on why all this matters-which is to accomplish your needs, your wants, and your wishes as efficiently as you can. Sometimes that does not require much of you other than to just show up, clock in and record your paycheck. Other times, like these, it will require much more to be sure. It does not translate to you having to overhaul or completely trash your financial plans, goals and priorities though. Like 2008, the retail investor may feel like all they have worked for is shot and their hopes dashed, but in reality, this too will pass, the markets will rebound and rally, and companies that seem destitute today will have their moment in the sun tomorrow-but until that time comes, exercise prudence, caution, and most importantly (with an extra dash of absolutely) be patient.
When hours feel like days, and days like weeks...BE PATIENT, this will pass.
When you want to check your accounts online because, well, there is nothing else better to do, BE PATIENT (and go find something to do).
When you want to start examining your holdings and doing your own research, BE PATIENT and realize it's a lot harder than it looks.
When we are sitting down in 2025 talking about your accounts and how you wish you would have bought more X or Y when it was down to blank, remember, now is that time to act and not be a bystander.
Till we speak again, enjoy the warmer weather,
Economic Normalization Near?
WEEKLY UPDATE - MAY 4, 2020
The Week on Wall Street
Stock prices ended the week slightly lower, despite news of positive results from a test trial of a COVID-19 drug treatment and several states easing their economic lockdowns.The Dow Jones Industrial Average slipped 0.22%, while the Standard & Poor's 500 lost 0.21%. The Nasdaq Composite Index dropped 0.34%. The MSCI EAFE Index, which tracks developed stock markets overseas, rose 4.34%.