With a global 24/7 news cycle dominated by extreme volatility in markets, attention-getting and emotionally jarring cell phone alerts and constant “breaking news” banners, what is one to make of it all? It’s hard to ignore in our wired world.
In a 48 hour span, March 9-10, 2020, “March Madness” migrated from preoccupations with basketball to global stock and energy markets midst extreme and head-spinning volatility. To help make sense of events, this writer took a highlighter in hand and combed through The Wall Street Journal for those dates seeking threads of wisdom.
First, recognize that investing is about your future, which you assume is a long-term proposition, recognizing that we never really know what can happen from one day to the next. At each end of a range of probabilities, you have extremely positive outcomes and exceedingly negative disruptions. Reality normally is somewhere in between.
Take the stock market. On March 10 the Dow average came within a hair of crossing into “bear market” territory, defined as down 20 percent or more from a recent high. A “correction” is down 10 percent or more from the last high.
In the 11 years since the bull market started, we’ve seen seven corrections. By the time you read this, we may or may not be in a bear market. But no matter technicalities, the idea of a carnivoran mammal of any size, a baby bear or a mean mama, chomping away on your 401(k) or retirement nest egg is unsettling. That’s why your financial plan should be based on a risk-adjusted asset allocation matched with your circumstances, time frames, obligations, earning power, “no risk or low-risk” reserves, debt management, inflation hedges, health status, etc.
As to stock market volatility, the WSJ noted that much of the gyrations may be traced to technology, high-frequency traders and algorithmic strategies that generate mega-volumes of buy or sell orders with little to no human intervention. When you see surges in volume just after the opening or just before the closing bell, chalk it up to the “rise of the machines,” Wall Street’s version of “Terminator 3.”
A move toward “no analysis” passive investing and easily traded ETFs which mimic stock indexes like the S&P 500, Dow, or Nasdaq, add to volatility. These indexes are weighted by stock valuations, and as a bull market rolls on, a few large-cap behemoth companies such as Microsoft, Apple, Amazon, Alphabet, etc., dominate the index as buying pushes up valuations. When the stampede for the exits ensues, the indexes plummet as overpriced big dogs are dumped. Bouts of high volatility, to the upside or downside, are increasingly likely going forward.
Covid-19 and the oil price war are the black swans du jour. Aside from financial strategy and personal planning lessons, there are health nuggets worth considering since health care is wealth care. The Japanese are relatively healthy since they generally eschew handshakes in favor of bowing. We don’t know if the fist bump, elbow or toe tap, or peace sign, will replace the handshake, but it would be wise if that happened during routine flu season which kills anywhere from 12,000 to 61,000 people annually in America, with 140,000 to 810,000 hospitalizations, per the CDC. We have learned to wash our hands well and often, use hand sanitizer and paper towels to open bathroom doors and doorknobs in general.
Television remotes in hotels are never cleaned, ditto for restaurant menus. The safest seat germ-wise on an airplane is a window seat, providing less interaction with fellow passengers. On long haul trips, a lay flat bed seat in business or first class is the safest location if your budget permits. Experts tell us flu-like illnesses tend to peak and decline in warmer weather as airborne germs fall to the ground faster in humid, warm air. They travel farther in colder and dry air.
At this writing no one really knows the extent of the damage to the economy to come from Covid-19, energy prices, or anti-business political rhetoric championing tax increases and more regulations. Election years get messy, especially now with extreme divisions and hostility between political rivals. The good news is that the American economy is in the best shape one could hope for to weather the storms of 2020.
Within every storm, whether personal or national, there are seeds of opportunity. Good planning allows for revisions and changes in course, when prudent. The 24/7 news cycle will always fuel anxiety at times, which is why holistic planning incorporates flexibility and the ability to adjust to your personal circumstances. A review with your personal advisors is step one. The storms now unfolding, too, will pass.
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553;email@example.com. Securities & advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis is a registered representative and investment adviser representative of SFA, otherwise unaffiliated with Capital Insight Group. He’s a Gallup Certified Clifton Strengths Coach and Certified Exit Planning Advisor.