Dancing bears. Stocks sold off yesterday as traders responded to the inevitable spread of the Coronavirus. Treasury yields continue to fall as investors rush into safe haven assets.
N O T E W O R T H Y
All eggs in one basket. In times like these, the case for diversification is thrown into sharp focus. A diversified portfolio contains a combination of uncorrelated assets. When one of those assets goes down, the other uncorrelated ones do not, thus the overall loss to the portfolio is minimized. Historically, investors looked to bonds to diversify their portfolios as bond prices, more often than not, move in the opposite direction of stocks. As history would have it (I am referring to more recent history), the burgeoning bull market that emerged in the wake of the financial crisis bore a generation of return-hungry investors who did not want to underperform equities. This led investors to lower their allocation in bonds in favor of stocks. As the bull market intensified so did the reallocation. Not content with just ordinary equity returns, investors began to invest in the riskiest equities in an attempt to beat the stock market. The end result of that common investing theme is a generation of investors, now twelve years closer to retirement, with portfolios that are far too risky for their goals. Unfortunately, it only becomes obvious to them in times when the market is misbehaving. The market swoon in December of 2018 was not the first warning but it was surely a poignant one. The Federal Reserve can be credited with the rescue when they pivoted and ultimately lowered rates resulting in a great year for stocks in 2019, which unfortunately provided little motivation for investors to lower the risk in their investments. The US Economy, though it has some small cracks in it, has been surprisingly resilient and continues to stand on solid footing. Unemployment remains low, inflation is low, and interest rates are low which leads to confident consumers, who ultimately power the economy forward. The Coronavirus outbreak has thrown a curve ball to the global economy. In order to contain the virus, China cut its production capacity causing reverberations around the globe, reminding us how intertwined the global supply chain has become. The spread of the virus outside China has impacted global demand as well. All of this combined with a bit of fear has resulted in this most recent rout in stocks. Bonds on the other hand have risen as investors clamor for some safety. The move has caused yields on US treasuries to hit all-time lows as bond prices are driven up. If your portfolio contained stocks and bonds, you may have still lost money in the past several weeks of turbulence, but you would have lost far less than those who owned just stocks. Diversification, long term focus, and compounding returns are still the best way to build and protect wealth.
THE MARKETS
Stocks sold off yesterday with very little in the way of positive news to stop the slipping. The S&P500 dropped by -3.39%, the Dow Jones Industrial Average fell by -3.58%, the Russell 2000 traded off by -3.42%, and the NASDAQ Composite Index slipped by -3.10%. Bonds traded up and 10-year treasury yields fell by -14 basis points to 0.91%. The 30-year treasury long bond closed out yesterday’s session yielding 1.54%, which is lower than the dividend yield of the S&P500 which now stands at 2%. Crude oil gave up another -1.88% yesterday despite some progress in OPEC+ discussions. Disarray amongst OPEC+ members and Russia regarding supply cuts have put further pressure on prices.
NXT UP
– Non-Farm Payrolls are expected to have increased by +160k jobs compared to last month’s addition of +225k.
– The Unemployment Rate is expected to come in at 3.6%, same as last month.
– Wholesale Inventories may have decreased by -0.2% for a second month. The number reflects January but will be closely watched going forward to determine whether or not the Coronavirus spread has an impact on consumption.
– Today’s Fed speakers include Charles Evans, Loretta Mester, James Bullard, John Williams, Eric Rosengren, and Esther George. Pay attention to these today. Comments may give some clue about further Fed easing.
– Check back on Monday for details on next week’s economic and earnings releases.
IMPORTANT DISCLOSURES.
Muriel Siebert & Co., LLC is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, LLC. Siebert AdvisorNXT, LLC is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.
You are being provided this Market Note for general informational purposes only. It is not intended to predict or guarantee the future performance of any security, market sector or the markets generally. This Market Note does not describe our investment services, recommendations or market timing nor does it constitute an offer to sell or any solicitation to buy. All investors are advised to conduct their own independent research before making a purchase decision. This Market Note is to provide general investment education and you are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate for you based on certain investment objectives and financial situation. Do not use the information contained in this email as a basis for investment decisions. You should always consult your investment advisor and tax professional regarding your investment situation before investing. The charts and graphs are obtained from sources believed to be reliable however Siebert AdvisorNXT does not warrant or guarantee the accuracy of the information. Any retransmission, dissemination or other use of this email is prohibited. If you are not the intended recipient, delete the email from your system and contact the sender. This is a market commentary, not research under FINRA Rule 2210 (b)(1)(D)(iii) and FINRA Rule 2210 (c)(7)(C).
© 2021 Siebert AdvisorNXT All rights reserved.
