Stock markets around the world have been selling off as more and more cases involving coronavirus are documented and speculation of it spreading to the U.S. increases. During times of global market crisis like this, we understand it is natural to question if an investment strategy change could be warranted. However, these are the times we hold strongly to our belief that the investment strategy we already have in place is poised to weather these times of uncertainty and has been tested, through our research and analyses, against these types of events. It is what you have done with your investment strategy and financial planning prior to this point in time that matters most.
On January 3rd, prior to any widespread coronavirus discussions, Resolute implemented a 5% reduction of equity exposure across our target allocations. Below are some excerpts from the communication we sent out that day:
“With the recent rally in the market and the expansion of P/E multiples, Resolute is making changes to our target allocations. We are taking the opportunity to capture some profit and exercise a little caution.”
“The stock market has been increasing at a faster pace than earnings growth estimates; this leads us to believe that future gains in the stock market could be heavily dependent upon further P/E multiple expansion. “
“These steps are not a prediction that markets will prosper or falter in the near future, but more a representation of our philosophy of capturing growth without becoming greedy. For the reasons outlined above, we believe taking steps to be cautious is prudent at this time.”
If you look at what is happening currently it is hard to tell how much of the sell-off is based on irrational fear, and how much of it is based on fundamental changes. It is common for emotion to have a short-term, but dramatic impact. Fundamentally, however, S&P 500 aggregate earnings growth estimates have been falling since the beginning of the year for 1Q, 2Q and 3Q 2020. The rate of the declining pace of expected growth has increased recently, as have the fears of the impact of coronavirus on global economies. The decline in market prices does seem to be more than purely emotional, from the information we have been tracking. See the chart below:
Our stance, at this time, is to continue with the cautious approach we implemented in early January. We will continue to follow the data and keep you informed of any changes we are making that may affect your investment portfolio. Please contact us if you have any questions regarding these changes.
As always, we look forward to our next conversation.
The views expressed represent the opinion of Resolute Wealth Advisor, Inc. (RWA). The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While RWA believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the RWA’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility.
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