4Thought provides actionable investment analysis and perspective on the financial markets to you on a weekly basis.
Contact us to determine whether any ideas presented are applicable to your situation before taking any actions with regards to your financial plan or investment portfolio.
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 2nd, 2020.
Stocks continued to move back towards their previous record levels during the last week in the sustained recovery that has followed the deep 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. Despite the rally in the time since, it still remained 9.95% below its record peak as of the close of business yesterday (on June 1st).
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 total investable cash, with the remainder dollar-cost-averaged in 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 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). Against this backdrop the outlook for stocks is now modestly positive in the intermediate term based on the overall aggregate of our historical market-type data analysis and quantitative probabilistic analysis.
US aggregate bonds (driven by Treasury securities) are still the strongest performers so far in 2020, while US small cap stocks show the worst year-to-date performance. Emerging markets bonds 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. Thanks for watching, and see you next week.