Spring is in the air
Today in Michigan, it hit 54 degrees. It wasn’t a blue skies and sunny kind of day, but the weather is changing, the Tigers are playing, and the Masters is next week. I love spring.
But if you looked at the stock market today, or any day in the past couple of weeks, things looked very different.
It is easy to blame the downturn on tariffs, a potential economic slowdown, and a sea-change in how the United States is positioning itself on the global stage. If it were one of these alone, it probably wouldn’t be so concerning, but all together makes for peak levels of uncertainty. Wall Street hates uncertainty.
There are no winners with tariffs. JP Morgan’s Chief Economist, Dr. David Kelly (who studied at Michigan State University) wrote an interesting article on this very subject.
And the conservative-leaning Wall Street Journal recently ran an article documenting the ways that the US is shifting away from the policies put in place after World War II to defend freedom and democracy across the globe to alter the world order that our country helped design and defend.
There are reasons to be concerned. But let’s put that in perspective. There are always reasons to be concerned.
The stock market is a just that, a market place of stocks of publicly traded companies. The price of those stocks are based on the profits of those companies. And many times, the price fluctuates greatly – not on profits, but on fears. On worries. On speculation about the future. And the future right now is uncertain.
The stock market runs in cycles. And over the past 18 months, the markets have been kind. Some might say frothy. Worthy of a correction. We are in that territory right now.
But let’s remember that since the election, there was, please forgive the phrase – I did not make it up – a Trump bump when the stock market went up.
So, all things being equal – we are about where we were last November. The year prior to that was a very robust year in the stock market.
That is all to say that stocks move. That is what they do. Savvy investors use the volatility to their advantage. That old saying, buy low/sell high was made for times like these.
Now, could it go lower? You bet. We are at the beginning of a new administration, and they are making some major changes to just about everything. There is going to be disruption and that will likely impact the economy and the stock market.
What to do? Well, if your risk tolerance has shifted, there is no shame in adjusting the portfolio to get a little defensive. One of my favorite sayings is that no one ever went broke taking a profit. And after the last couple of years, we have some profits.
One strategy to consider when getting defensive, is using a hedged strategy that allows for upside if the markets rebound, but puts in place some downside protection. If that sounds like something you would like to learn more about, give us a call.
Another strategy is to lock in some of the higher interest rates right now. Money market funds are finally paying pretty well right now, but their yield will fluctuate. We can ladder some fixed income investments (CDs, US Treasuries and Corporate Bonds) over the next 1-5 years and lock in higher rates for a longer period of time. Again, if that sounds interesting, we would be happy to discuss it.
If you are in one of our model portfolios, we have been and will continue to rebalance portfolios. If you would like to learn more about our models, please contact our office to schedule a meeting.
As tax day is right around the corner, it reminds me that we can also use this downturn to perform some tax-loss harvesting. I don’t mind paying my fair share of taxes, but I don’t want to pay one nickel more than I have to. That is why we like to be as tax-efficient as we can when managing money.
For investors with a long-term time horizon and a healthy appetite for risk, if you have cash sitting on the sidelines, we may have several buying opportunities in the near future.
There is an old Chinese saying: may you live in interesting times. Well, we certainly are. If you would like to discuss your situation, please contact us – we would love to meet with you to review your portfolio and your options.
In the meantime, I’ll be happy to take Madigan on a walk and not have to wear a down coat and wool hat.
Joe