The first quarter is not off to a good start for many investors. It feels like we hit the perfect storm of coronavirus (CoV), political campaigns and the general aging of the business cycle all at the same time.
Every month our chief investment strategist, Jeff Krumpelman, CFA, publishes his “wall of worry” items, listing the pros and cons on what are major concerns at the time. From there he makes assessments about the economic outlook and the stock market.
This month’s “wall of worry” showed all the things we have worked through so far this year that are basically crossed off the list. This is helpful to show we are eliminating some issues that were very worrisome that have now passed. Here are some of those items:
• Trade tariffs with China
• Impeachment trial
• Government shut down
• Earnings season (originally predicted to be flat but was actually positive)
• Iran conflict
What remains on the wall are concerns around how the coronavirus will spread and how it will affect the global economy. Also, the presidential election is causing uncertainty, which the stock market never seems to like.
The general economic slowdown that has been talked about for almost a year now may also be coming to fruition.
The positive items on the wall are actually keeping long-term investors optimistic. These items include wage growth, strong employment numbers and jobs creation, a strong housing market and the manufacturing and services index holding steady.
We believe we are fortunate in that the stock market correction comes after the record high water marks on Wall Street. That is a much easier decline than if we were already in economic doldrums. At this point, in our view, the market has lost some of “the house’s money” meaning some of the profits gained since late last year.
Corrections, defined as a drop of 10% from the high, are common and healthy for markets that were in record territory daily. It is never fun to see red arrows on your brokerage statement; however, most investors realized there would be a pullback at some point. A bear market is defined as a 20% or more drop from the high.
The economic fundamentals are positive, albeit at slower rates than last year. And yes, there will likely be a recession someday too, defined as two consecutive quarters of negative GDP (Gross Domestic Product). At this point we don’t know if the CoV will be enough to pull economic activity into negative territory. Without the impact of the virus, there are still some strong economic indicators that will likely give us some ballast later in this election year.
It is always a good idea to review your portfolio strategy with your advisor, and to consider trimming profits at market record highs. Then you can update your strategy and determine if it makes sense to use these dips as buying opportunities if you have a long-term perspective.
Source: Jeffrey Krumpelman, CFA, Chief Investment Strategist, Head of Equities, Mariner Wealth Advisors.
Patricia Kummer has been a Certified Financial Planner and a fiduciary for over 30 years and is Managing Director for Mariner, LLC d/b/a Mariner Wealth Advisors, an SEC Registered Investment Adviser. Please visit www.marinerwealthadvisors.com for more information or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Securities offered through MSEC, LLC, Member FINRA & SIPC, 5700 W. 112th Suite 500, Overland Park, KS 66211.