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The Sell-Off Continues

Unimpressed with March 12, 2020's 10% drop (the fourth worst single day ever), equities markets put in declines of 12-13% today, now the second worst day in stock market history.  Only the market crash of October 22, 1987 was worse.  If you ever wanted to be part of history, we've now seen two of the five largest down days ever in the span of three trading days.  Probably wasn't the history you were hoping to be a part of. 


Some quick facts:

1) We've now seen nine straight days with an opening gap (where we started the day trading compared to where we finished the day before) of greater than 2%.  The previous high was eight, in 2008.  This indicates we're experiencing greater volatility than 2008.

2) This is the fastest (19 days) we have ever gone from new highs to a "bear market" (down 20%).  In fact, we almost cut in half the previous record of 36 days.  The speed of this move has quite literally been unprecendented, by far.  


With President Trump now warning it could be July or August, at the earliest, before American life returns to normal, stock market participants have adopted a "sell first, ask questions later," approach.  And despite all this, for the first time in a few weeks, I'm feeling more optimistic.  What's perked me up?

1) President Trump's press conference today was (mostly) brutally honest.  In 3 1/2 years, I think it was the most honest press conference I've seen him give.  

2) Washington, too, finally seems to get it.  We're in a historic time and historic action will be needed.  Whether it's a Republican senator like Mitt Romney proposing mailing every American $1000 or a $750 billion dollar stimulus package proposed by Democrat Chuck Schumer, money is coming, a lot of it.  Whether this package arrives next week, next month, or later this summer, I still can't tell you.  But I'm extremely confident that it will arrive, and it will be huge.  

3) In the last 72 hours many America cities and states have shown a willingness to engage in mass shutdowns.  Previously, I wasn't sure this was possible.   

4) Slowing infection rate data from China, S. Korea & Italy will, if it sticks, be extremely encouraging. 

5) Some debt markets are beginning to function somewhat normally.      


None of this is to say it's over.  It's probably not.  But I continue to feel we're not headed towards a 2008 redux and we're now closer to the low than the high.  While my opinion can always change, I believe there are some "green shoots" that should be recognized.  With this in mind, and while we continue to search for a final low (likely over the next few months), I wanted to cover some new ideas and recommendations:

1) Consider moving money from standard savings accounts into the market.  This is risky, and not for everyone.  But if you'd like to try and achieve a higher rate of return on at least some of your more conservative funds, we're approaching a lower risk time to do that.  

2) Consider a "Roth Conversion."  One of the best times to do a Roth conversion of existing IRA assets is when prices are down.  There are numerous other considerations and this move isn't for everyone.  I can explain more if you're interested and/or want me to specifically review your situation.  

3) "Pull forward" 2020 IRA and Roth IRA contributions.  For those who set up an equal monthly draw to get them to a maximum annual IRA contribution amount, consider making a lump sum contribution now, and then replenishing savings the rest of the year.

4) Rebalance your portfolio.  Almost certainly the percentage of bonds has now gotten above target bands.  Consider selling bonds and buying stocks.  FWM investment management clients, I will be doing this over the next few weeks for you, so expect to see additional trade confirmations coming through your email.

5) Change your "tactical" asset allocation.  Recognize there is no universally set range of stocks and bonds for a given risk in a portfolio.  While 60% stocks might be a good baseline for a "Moderate" portfolio, it may make sense to bump that up to 65% if the market just fell 30%, at least for a little while.  This is another idea I'll be considering for FWM investment management clients over the next few months.  

6) Get ready to "go shopping."  No, I'm not talking about stocking up on toilet paper.  I've spent the last few years suggesting clients delay large purchases like vehicles, grand vacations, and large home renovations. Now is the time to finalize your research and start looking for deals.  They will be coming in the next few months.


As always, any idea should be considered within your unique situation.

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