Coronavirus Is Not What Ails The Stock Market. Here’s Where Retiring Investors Need To Focus.

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Pricey markets with economic headwinds are always vulnerable. That’s The bottom line.

The Dow dropped over 600 points on Friday. That’s nothing new, as this happened plenty of times in 2018. And, it’s only one day. But wait, there’s more.

You see, this phase of the long bull market cycle that started in 2009 is giving us more and more clues all the time. The trick is to piece them together. And, you have to maintain your humility and frustration when everyone around you seems to think the party just started. More likely, it is close to ending.

The Coronavirus is a horrible development from a human health standpoint. Secondarily, it is causing governments and businesses to make difficult decisions. However, there is one thing that the financial media does every time something like this comes along. And, its doing it again.

Markets have been brushing off developments in the global economy and the internal condition of the stock market for about 3 years. That shows a strong will on behalf of investors to stay positive. That’s nice. However, it only extends the bull market. It doesn’t make it vanish like the Wicked Witch of the West.

Understanding that, if we simply take account of what else is going on, now that the Coronavirus is stoking fear and economic alarm across the globe, we can decide what to do next with our assets. I have explained that as part of an ongoing dialogue in this space for a couple of years. Now that the “something” came along to potentially prick the stock market bubble, let’s take a bottom-line view of what the investment landscape looks like, right now.

I track an ongoing list of potential investor stress points. Here are a few that have quickly become the most prominent, given Friday’s sudden stock market tumble.It’s falling at an accelerating pace.

Global economic growth

The Institute of Supply Management (ISM) Manufacturing Survey fell hard late last year. More recently, last Friday’s Chicago Purchasing Manager’s Index Data signaled that things are getting worse, not better for the global economy. Ironically, after all the back-and-forth over China-U.S. trade relations, China’s economy is now transporting an economic recession anyway. Some of the weaker European nations are already there.

Sentiment was too strong

A variety of formal and informal sentiment indicators have been flashing warning signs for months. Some of this can be easily documented. Others are more about what those of us who were managing money during the Dot-Com buildup and bubble felt like. And, the similarities to today’s environment are striking.

However, none of that matters until stock prices dive. As I noted elsewhere late last year: I will feel that we’ve reached the top of the bull market when we get something more confidence-shaking. I think that is more likely in 2020.

Perhaps the growing weakness of the market condition made it susceptible to an illness out of left field, so to speak. That illness appears to have come in the form of the Coronavirus.

S&P 500 Index-Envy

S&P 500 index funds have essentially become the “slam-dunk” of our generation. The investing public has been conditioned to think that the S&P 500 is “the market.” At the start of bull markets, when everything is way down, that makes sense to me. However, as the bull rolls one, it requires more careful analysis than that.

Here is a quick look at what I mean. This shows the S&P 500 and various slices of it over the past 12 months. The “headline” index is in blue, up over 21% during that time. However, the tech sector, which makes up over 20% of the S&P 500, is up more than double that! And, within that sector, a small number of stocks are carrying the weight. This is classic late bull market behavior.

Also, see the red and green lines at the bottom. That shows you that dividend stocks in general have severely lagged the “headline” S&P 500 Index. And, the red line shows an ETF that tracks many of the highest-yielding S&P 500 component stocks. Bottom-line: when dividends are treated as way less important by investors, it’s a sign of overconfidence. Mrs. Market likes to eat that for lunch.

Here is the same set of S&P 500 and slices, but just for January of this year. Tech way up, overall index up until Friday’s plunge, and dividends stocks treated like garbage. That all checks out to me. This is a market decline worth paying attention to.

Beyond the Coronavirus fears

Importantly, all of these market and economic ailments all predated the outbreak of the Coronavirus. However, if you are looking at it with some real perspective, it was only going to take one shock to the system to tip things over. It’s as if the market had its fingers crossed for months. But that old superstition didn’t work this time. Imagine that!

Next step for anyone nearing or in retirement

If you are nearing retirement or already in it, this is the ideal time to adopt a hedged investing approach. That is, don’t just leave it to the market to work it all out for you. 60/40 portfolios are a marketing gimmick that happened to work well for a while, since stocks and bonds were in bull market mode. That’s changing rapidly, as Friday reminded us. Expect more warnings in the near future.

As for what to do, the key is not to stand still. I have written several articles about alternatives to traditional investment approaches, so peruse those for a more robust picture. As we observe the follow through from Friday’s drop, I plan to be active in my commentary here, so stay tuned.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors

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Expensive markets with financial headwinds are all the time susceptible. That’s The underside line.

The Dow dropped over 600 factors on Friday. That’s nothing new, as this occurred loads of instances in 2018. And, it’s solely someday. However wait, there’s extra.

You see, this section of the lengthy bull market cycle that began in 2009 is giving us increasingly clues on a regular basis. The trick is to piece them collectively. And, you must preserve your humility and frustration when everybody round you appears to suppose the occasion simply began. Extra seemingly, it’s near ending.

The Coronavirus is a horrible improvement from a human well being standpoint. Secondarily, it’s inflicting governments and companies to make troublesome selections. Nonetheless, there’s one factor that the monetary media does each time one thing like this comes alongside. And, its doing it once more.

Markets have been dismissing developments within the international financial system and the inner situation of the inventory marketplace for about three years. That reveals a powerful will on behalf of traders to remain constructive. That’s good. Nonetheless, it solely extends the bull market. It doesn’t make it vanish just like the Depraved Witch of the West.

Understanding that, if we merely take account of what else is happening, now that the Coronavirus is stoking concern and financial alarm throughout the globe, we are able to resolve what to do subsequent with our property. I’ve defined that as a part of an ongoing dialogue on this area for a few years. Now that the “one thing” got here alongside to doubtlessly prick the inventory market bubble, let’s take a bottom-line view of what the funding panorama appears like, proper now.

I monitor an ongoing record of potential investor stress factors. Listed below are just a few which have shortly develop into essentially the most distinguished, given Friday’s sudden inventory market tumble.It’s falling at an accelerating tempo.

International financial progress

The Institute of Provide Administration (ISM) Manufacturing Survey fell laborious late final yr. Extra lately, final Friday’s Chicago Buying Supervisor’s Index Information signaled that issues are getting worse, not higher for the worldwide financial system. Sarcastically, after all of the back-and-forth over China-U.S. commerce relations, China’s financial system is now transporting an financial recession anyway. Among the weaker European nations are already there.

Sentiment was too robust

A wide range of formal and casual sentiment indicators have been flashing warning indicators for months. A few of this may be simply documented. Others are extra about what these of us who had been managing cash in the course of the Dot-Com buildup and bubble felt like. And, the similarities to right now’s atmosphere are hanging.

Nonetheless, none of that issues till inventory costs dive. As I famous elsewhere late final yr: I’ll really feel that we’ve reached the highest of the bull market once we get one thing extra confidence-shaking. I feel that’s extra seemingly in 2020.

Maybe the rising weak spot of the market situation made it vulnerable to an sickness out of left subject, so to talk. That sickness seems to have come within the type of the Coronavirus.

S&P 500 Index-Envy

S&P 500 index funds have primarily develop into the “slam-dunk” of our era. The investing public has been conditioned to suppose that the S&P 500 is “the market.” At first of bull markets, when every little thing is means down, that is smart to me. Nonetheless, because the bull rolls one, it requires extra cautious evaluation than that.

Here’s a fast take a look at what I imply. This reveals the S&P 500 and varied slices of it over the previous 12 months. The “headline” index is in blue, up over 21% throughout that point. Nonetheless, the tech sector, which makes up over 20% of the S&P 500, is up greater than double that! And, inside that sector, a small variety of shares are carrying the load. That is traditional late bull market habits.

Additionally, see the crimson and inexperienced traces on the backside. That reveals you that dividend shares basically have severely lagged the “headline” S&P 500 Index. And, the crimson line reveals an ETF that tracks lots of the highest-yielding S&P 500 part shares. Backside-line: when dividends are handled as means much less essential by traders, it’s an indication of overconfidence. Mrs. Market likes to eat that for lunch.

Right here is identical set of S&P 500 and slices, however only for January of this yr. Tech means up, total index up till Friday’s plunge, and dividends shares handled like rubbish. That every one checks out to me. It is a market decline value being attentive to.

Past the Coronavirus fears

Importantly, all of those market and financial illnesses all predated the outbreak of the Coronavirus. Nonetheless, in case you are it with some actual perspective, it was solely going to take one shock to the system to tip issues over. It’s as if the market had its fingers crossed for months. However that outdated superstition didn’t work this time. Think about that!

Subsequent step for anybody nearing or in retirement

If you’re nearing retirement or already in it, that is the perfect time to undertake a hedged investing strategy. That’s, don’t simply depart it to the market to work all of it out for you. 60/40 portfolios are a advertising gimmick that occurred to work properly for some time, since shares and bonds had been in bull market mode. That’s altering quickly, as Friday reminded us. Anticipate extra warnings within the close to future.

As for what to do, the secret’s to not stand nonetheless. I’ve written a number of articles about options to conventional funding approaches, so peruse these for a extra sturdy image. As we observe the observe by means of from Friday’s drop, I plan to be energetic in my commentary right here, so keep tuned.

Feedback offered are informational solely, not particular person funding recommendation or suggestions. Sungarden supplies Advisory Companies by means of Dynamic Wealth Advisors