Health & Wealth Update
Monday's sell-off, then Tuesday's recovery, and todays sell off, while extreme, was not wholly unexpected, given the emotional swings of the past two weeks.
More concerning to me is the sharp decline in rates, with the 10 year treasury hitting a low of .54% on Monday, a new record! Our target last summer was for the 10 year to hit 1%, the 30 year touching 2%, due to ab global deflationary environment.
While the trigger for this sell-off was clearly the global fears about the coronavirus, I believe the two bigger factors contributing to the intensity of the selling are :
1. Valuation - As noted in our last post, this stock market was above 90th percentile in overvaluation (97th percentile in market cap to GDP- The Buffet Indicator) The 1987 Crash, (Yes, I was there, left a big impression on the then 23 year old) showed that over valued markets are extremely vulnerable to panic selling.
2. Moral Hazard In December of 2018, the Federal Reserve reversed its tightening rhetoric, and sent a clear message it would step in to support stock prices. I was very disappointed when the Fed doubled down with their 1/2 percent cut last week. The market is heavily testing the Fed's thesis that this will control the stock market, or even the economy. Yes , low interest rates are good for economic activity. Not too low, where savers and conservative investors are hurt.
The economy goes through a normal business cycle, and no amount of interest rate lowering, and/or fiscal stimulus will stop this from occurring. And no one in a political office will stop this from occuring. They may, however, impede the natural business cycle of a free market, capitalistic economy, with their policies. My personal opinion.
Economic activity, and growth, is dependent on consumer and business confidence. And consumers have confidence when they have jobs, and their income is secure.
There is no doubt that there will be economic impact from the Coronavirus news cycle. Fedex cut its estimate for U.S. GDP growth in 2020 to 1.7%. GDP grew 2.3% in 2019, and 2.9% in 2018.
So, not a disaster. The wild card will be how many layoffs, business closings, caused by slowing demand , etc. This was already beginning to occur during the Q4 2019, before the coronvirus became a household word. The down cycle is never fun, but a bottom, both for the market, and economy , will be found, eventually. And, confidence will return, along with economic growth.
Positives are that the central bank will keep easy money in place, good for mortgages, household formation, and home building. Infrastructure needs to be dealt with, most likely will happen after the election into the new cycle.
The millennials are 90 million strong, will be spending with household formation. And the baby boomers, probably the most active retiree generation, definitely will keep spending, on travel, leisure, healthcare, and the grandkids.
Here are a couple of interesting links, what I have been reading, and watching the last few days.
Enjoy, look forward to speaking with everyone soon!
Ask Mr Wonderful Once you get past the shameless self promotion, Mark Cuban and Kevin O'Leary offer some good thoughts on entrepreneurship, picking a college major, and the Coronavirus effect
Which company makes Purell, the hand sanatizer that seems to be sold out everywhere? Read this interesting story about the company behind the brand.
Great article on what it will take to inspire confidence
Wash your hands like a Doctor
John Stanton is a Wealth Advisor at The Stanton Group WP | SeaCrest Wealth Management, LLC. With more than three decades of experience in the financial services industry, he serves as an advisor for clients, focusing on financial planning and the investment strategies to support their financial plan. Based in Naperville, Illinois, John serves clients in Naperville, Plainfield, Darien, and throughout the state. Learn more about John’s services by visiting www.stantongwp.com or connecting with him on LinkedIn. You may reach John at 630-445-2380 or email JStanton@seacrestwm.com.
The Stanton Group WP provides investment advisory services through SeaCrest Wealth Management, LLC (the “SWM”), a registered investment advisor. SWM is a registered investment advisor (“RIA”) with the U.S. Securities and Exchange Commission located in the State of New York. SeaCrest Wealth Management, LLC can be reached at (914) 502-1900.
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