The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
Economy vs. Market
May 29, 2020
I'm going to keep the numbers to a minimum and, as with previous messages, I'll add my usual disclaimer.....we aren't out of the woods yet. Actually, we are far from it, but we are now witnessing the significant disconnect between the economy and the market. This has always created a problem for the masses. People see the news and it's bad, fear continues or gets worse, they sit on the sidelines or get out. At the same time, the market experiences its greatest one month return in decades. Although, looking at indices can be like swallowing a sound bite, it doesn't give you the entire story. As they say, the devil is in the details.
News on the economy is historical, like the return numbers you see on your statements, it reflects what has ALREADY happened (just one reason you shouldn't make investment decisions based on rate of return alone). The market on the other hand is constantly trying to price in what is going to happen.
GDP (Gross Domestic product) = looks backwards
Financial Markets = look forward
Now for some detail. Often times people are watching or quoting the S&P 500. That's obviously 500 companies, but not all 500 are contributing to the market's rebound equally. Just a handful of companies have been responsible for over 20% of the market's surge. Between the government stimulus and the small number of companies driving the market rebound it's very difficult to know what is really happening by just looking at the index. There's always more to the story. This may be a good time to consider owning a diversified portfolio of quality companies.