Hard to believe that earlier this year the Dow Jones was on pace to hit 30,000 (29,551.42) before crashing to 19,173.98. At the time of this writing it has recovered to 27,792.88 There’s no telling what the rest of 2020 has in store but I continue to preach about buying and holding. The worst thing you can do is panic sell when the market is falling into the abyss. I encourage you to prepare yourself for when the market dips. It could be due to rising COVID 19 cases, hyperinflation, deflation or trade tensions with China. Perhaps this will lead to a 10%, 20% or even a larger correction but I highly recommend that you don’t panic sell and instead capitalize on the situation should it occur. Given that we are in a pandemic and now officially in a recession it seems reasonable the market will have a dip again. There’s just too much going on; GDP contacted by 33%, Treasury Bills are paying a half a percent in interest which is the lowest borrowing rate in 236 years and the dollar keeps sliding down.
If you are a conservative investor you might want to consider selling a little now while we are close to the high again. Or, hedge your portfolio with assets that tend to do well in a recession like gold. Another strategy is to rebalance your portfolio. These strategies work well with buying and holding. Just think to the last recession in March 2009 when the market was at 6,500. Too many people sold at the bottom and re-entered the market too late. Instead, buy more when the market dips and hold on for the bad times to end.
Why has the market rebounded so fast? The market has seen a quick rebound in part due to low interest rates and the government dispensing trillions into the economy. With the government printing money hand over fist (it’s Deja vu all over again we are back to QE) and with oil prices slowly creeping up we will likely see inflation climb well beyond the core 2% set by the Fed. Less workers means less products and with more money circulating means inflation seems certain to go higher. Inflation is defined as too much money chasing too few goods. The stock market on the other hand can keep up with high inflation and this is one reason for its quick rebound despite high unemployment and many businesses closing or cutting back. On the other hand, fixed investments like bonds, CDs and annuities are actually losing money when you factor inflation. For the month of May grocery items inflated 4.8% and in June gas rose 12.3%.
I hope this helps explain the recent events. Please don’t hesitate to reach out if you have any questions.
Matt Maciel
Maciel Wealth Management, LLC
