A Time for Caution is Here

A Resilient Stock Market

The stock market has exhibited resilience during the current economic malaise. The U.S. stock market is flat to down 8% on a year-to-date basis through July 30, 2020, depending upon the index used. This follows a strong 25-29% gain in 2019.  The stock market’s price-to-earnings “P/E” multiple is currently 19x and is materially higher than the 16x average.  While historically low interest rates justify higher than average P/E stock market ratios, this high valuation makes the market especially vulnerable to negative news, in our opinion.

We therefore advise clients to raise cash by reducing stock/equity exposure to the lower end of one’s ideal equity percentage range.

What’s Ahead

The global COVID-19 pandemic propelled our economy into a recession with depression-era economic contraction and unemployment numbers.  The Bureau of Economic Analysis “BEA” announced on July 30th that the economy contracted by 32.9% in the June 2020 quarter; in line with current expectations.  In May and June, the economy began to recover with consumer spending on the upswing and workers getting back to work.  In May and June 7.5 million jobs were added, after a horrendous decline of 20.8 million lost jobs in April.   Economists expect the economy to continue its recovery during the second half of 2020 and into 2021.  Economic uncertainties include the extent of the spread of COVID-19 and of course the development and deployment of therapeutics and vaccines.

SCHEDULE A CONSULTATION

AS ALWAYS
We recommend only to invest in the stock market with a long-term view (3+ years) and have cash available for emergencies and spending needs for the short term (1-3 years).

PLAN FOR THE LONG TERM
PREPARE FOR SHORT TERM STOCK MARKET DECLINES