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Hear from Chief Investment Officer Jesse Mackey in this week's Market Perspective.
I’m Jesse Mackey, CIO of 4Thought Financial Group, and this is 4Thought’s Weekly Market Perspective for the week of June 16th, 2020.
Stocks have given back some of their recent recovery gains during the last week in a moderation of the aggressive move upward that has followed the dive into a Bear Market during late February and most of March. The most recent low point for the S&P 500 Index of US large cap stocks was on March 23rd, at which point it had dropped more than 34% from the record peak achieved on February 19th. After sliding back into negative territory for year-to-date 2020 during the last week, it sat 9.63% below its record peak as of the close of business yesterday (6/15).
Historical market type statistical analysis reveals that once a Bear Market is confirmed (which occurred on March 11th), the average time to the trough of the cycle is approximately 5-6 months later and the average additional loss is approximately 16.72% from the Bear confirmation point (although both the actual time to trough and additional cumulative loss vary widely depending on the specific time period referenced).
For long term investors this window has historically proven a very opportune time to deploy any excess cash accumulated in bank checking and savings accounts that is not needed for short term expenses or savings goals (or to supplement household living expenses in the event of a temporary loss of earned income). Given the already elapsed time since confirmation of the most recent Bear market, any cash deployment should take the form of an immediate initial lump sum injection of 80% of the investable cash, with the remainder dollar-cost-averaged in at 10% increments over the next 2 months. Long term investors should speak to their advisors regarding whether and how to implement this, based on their particular financial situation.
From a probabilistic analysis perspective, stock types range from slightly undervalued (such as with mid and small cap stocks) to moderately overvalued (in the case of large cap growth stocks). Bond types also range from slightly undervalued (in the case of emerging markets bonds) to moderately overvalued (in the case of long term US Treasury Bonds and Investment Grade Corporate Bonds). Against this backdrop the outlook for stocks is now positive in the intermediate term based on the overall aggregate of our historical market-type data analysis and quantitative probabilistic analysis.
US aggregate bonds are still the strongest performers so far in 2020, while US small cap stocks and global private equity show the worst year-to-date performance. US mid cap stocks now reflect the most attractive pricing relative to the alternatives, while long term US Treasury bonds are the least attractive. With regards to allocations amongst investment methods, we are now allowing overweight allocations to Strategic Asset Allocation, neutral allocations to Liability-Driven Investing, and underweights to Selective/Concentrated Investing and Opportunistic Investing.
I hope this was helpful. If you have questions or you’d like to discuss how to implement any of this, please contact 4Thought at 516-300-1617 or at firstname.lastname@example.org – and don’t forget to subscribe to our blog feed and our YouTube channel. Thanks for watching, and see you next week.