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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 August 4th, 2020.
The most recent low point for the S&P 500 Index of US large cap stocks following its dive into a Bear Market was on March 23rd, at which point it had dropped more than 34% from the record Bull Market peak achieved on February 19th. After an initial very rapid rebound, more recently it has tentatively pushed back into positive territory for the year-to-date in 2020, but it still sat 2.91% below its record peak as of the close of business yesterday (8/3). The recovery rally in large caps has been driven primarily by multinational growth and technology company stocks. But this strength in a narrow segment of the stock markets masks much broader weakness. The recovery in other large cap sectors and in US small and mid cap stocks has been far less impressive and is still far from complete.
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, investors that want to attempt to take advantage of the still-present discount in stock prices should consider deploying 100% of the remaining residual cash intended for this purpose now (assuming that you've been dollar-cost averaging into the market over the last several months, as we've suggested previously). 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 near fair value (such as with mid cap stocks) to moderately overvalued (in the case of large cap growth stocks). Bond types also range from near fair value (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 slightly positive in the intermediate term based on the overall aggregate of our historical market-type data analysis and quantitative probabilistic analysis.
US aggregate bonds and Treasury Inflation Protected Securities are the best performers so far in 2020, while US small cap stocks show the worst year-to-date performance. US mid cap stocks now reflect the most attractive pricing relative to the alternatives, while US large cap growth and tech stocks 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 email@example.com – and don’t forget to subscribe to our blog feed and our YouTube channel. Thanks for watching, and see you next week.