Things continue to improve…

Things continue to improve

The pandemic shut down our economy earlier this year. Now America is slowly reopening. Here are some charts and data showing that things continue to improve.

From Liz Ann Sonders of Charles Scwaab…

From economist, Scott Grannis….

Airline passengers

things are continuing to imrpove

Gasoline Sales

things are cointuing to improve &nbsp

Service Sector Activity

things continue to improve Scott Grannis writes an outstanding blog, he uses a very data driven approach.  Check it out here.

From Economist Brian Wesbury of First Trust Portfolios…

 

Retail sales and food services

 
things are starting to improve

 

 

Industrial Production and Manufacturing Output

things are starting to improve

Mr. Wesbury also believes the recession is over. Read more here.

From Thomas Lee of fundstrat.com

And although this tweet is a little older, I still thought this was very interesting.      

There are still risks...

There are still risks ahead.  The pandemic isn’t over, and the risk of a second wave of infections remains a threat.  But every now and then, it is important to look past the bad news that dominates the media.  While we aren’t back to normal, things continue to improve.

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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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What the Heck is a V Shaped Recovery?

What the Heck is a V-Shaped Recovery?

With many states creating plans to reopen the economy, we keep hearing about the recovery. Experts continue to weigh in on what it may look like. But it leaves people wondering, “What the heck is a V-shaped recovery?” 

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If you hadn’t noticed, the American economy has come crashing down. Some people are estimating this will be one of the worst quarters since the Great Depression.

Now, the investment experts and economists are starting to focus on the recovery. And when they get on TV, you start to hear them say things like a V-shaped, or U- shaped recovery. I’ve even heard some talk about a “W” shape or an “L.”

What the Heck is a V-Shaped Recovery?

If you visualize the letter “V”, you see a steep decrease that comes to a point, followed by a steep increase. Think of this as a graph representing important economic data, like GDP, sales, or corporate profits. We’ve seen a rapid decrease in those data points.

V shaped recovery

Many hope that these numbers recover and improve just as quickly as they fell. And we’ll look back at those key statistics and see a “V” shape. This is the most optimistic scenario.

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The U-Shaped Recovery

A U-shaped recovery would see a sharp decrease followed by a gradual bottom. On the other side, the recovery would start slowly and accelerate as time moves on.

Recovery V Shaped

This would make the graph of those data points look more like a “U”. Not as good as a whole, but still not awful either.

A W-Shaped Recovery

V Recovery shape

You have some people worried about a “W” shape. And this wouldn’t be ideal. This would happen in this scenario. We reopen the economy, and things begin to recover quickly. As a result, we see the virus infections spike, which leads to another shutdown. And then the economy would restart at some point in the future.

This would not be ideal, but there is a risk of this happening.

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The L-Shaped Recovery

V shaped recovery

Perhaps the worst possible outcome is an L-shaped recovery. We’ve already seen the rapid decline. But in this scenario, the economic recovery would be long and very slow. A recovery like this could take years to return to where we were before this all started.

What Do I See?

I believe a U-shaped recovery is the most likely scenario at this point. The elected officials are going to reopen the economy at a very measured pace. People are going to be hesitant to spend, and it will take a while for demand to recover.

As much as I would like to see the V-shaped recovery, I don’t see it happening at this point. I am hopeful that we won’t experience a W-shaped curve. In that scenario, the governors would be a lot slower to reopen the economy a second time. And the damage from that would be even worse.

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What Do You Think?

What do you think?  We’d love to hear from you.  Leave your comments down below.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors. 

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Is The Bear Market Over?

Is the Bear Market Over?

On March 23, the S&P 500 closed 34% lower than it’s all time high. Since then, we’ve seen prices rebound nearly 27%. It has many people wondering,  “Is the bear market is over?” Today we’ll pose 4 questions that will help us determine if the new bull market has started.

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From February 1 to March 23 we saw the stock market reach bear market levels at a rapid pace. It was enough to rattle even the most disciplined investor. Since then, we have seen prices race higher. The gain has been roughly 27%. It has us all wondering, “Is the bear market over”

Bear Market Over - prices

Today the official answer is “maybe.” In my view, there are still 4 questions which need answered before we know if it is “officially over” or not

1. Has the Market Priced in the Bad News?

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The stock market is forward-looking—to a point. The price movements factor in a lot of projections about economic and earnings data. But how do you project something this extreme and unprecedented? We’ve never seen the economy forced to an almost immediate halt before now.

2. How Bad Will The Data Be?

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Standard and Poors projects earnings for the companies in the S&P 500 Index. Their most recent data shows an 18% reduction in profits for the first quarter of 2020. And that number was lowered from a week ago.  How much will the actual numbers differ from those estimates?

Gross Domestic Product—that’s the value of output from an economy—will almost certainly be worse this quarter. But how much worse? Some predict the worst quarter since the Great Depression. Will it be that bad?

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3. How Will Investors React?

Is the bear market over

As a group, investors rarely react the right amount. There is a tendency to overreact on both extremes. In the dot-com era, we saw prices pushed irrationally higher. You could argue prices fell too far during the Great Recession too. How will people react this time?

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4. How Long Do We Suppress The Economy?

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The longer we keep the economy in an induced coma, the longer it will take to revive it. When do we reach the point where there is significant long-term damage to our economy? This may be the most important question to answer.

The End of the Bear Market

The bottom of this bear market could have been on March 23. If it was, we can celebrate—we are on our way to recovery. But we need to brace for the idea the worst of this downturn is yet to come. The market could drop further. If the data is worse than expected, it could drop a lot further.

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In this free guide, we’ll share 3 things you need to know about bear markets, and 4 things you can do right now to survive it.

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.  

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The Best Reason To Not Sell Your Stocks Now

The Best Reason To Not Sell Your Stocks Now

If you haven’t sold your stocks at this point, you may not want to.  Sure, the market could drop further. But selling now could be a big mistake.  Today, I’ll share the best reason to not sell your stocks now.  (read more below)

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Why Sell Now?

The sole reason to sell stocks at this point is to keep your balance from shrinking further. We never truly know (in advance) where the bottom is. And we may not have seen the bottom of this bear market yet. 

Not Sell Your Stocks Best Reason
Click to Enlarge

But selling at this point could end up being a big mistake. Here is the best reason to not sell your stocks now.

Bear Market Math

The foundation of our reason is rooted in what we’ll call bear market math. How much return do you have to earn to recover all that was lost during the downturn?

The Best Reason To Not Sell Your Stocks
Click to enlarge

Let’s say the market only dropped 20%.  To erase the losses, you would have to earn 25%.

Right now, the current bottom of this bear market is about 34% lower than the all-time high. From that point, you have to earn 51% to erase the losses.

And if this bear turns uglier and drops say 50% from its February high, you’ll have to earn a 100% return to break even

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"Safe Assets" Offer Very Low Returns

Selling those stock holdings now and moving to the so-called safe assets can be a big problem.  In today’s environment, the potential future returns for those types of investments are very low. You might find a 6 month CD with a yield of 1%. 12 month CD’s are only slightly better. And we all know most of our savings accounts don’t even pay that much. Those low returns make recovering your losses very difficult—if not impossible.

And those prospects look even worse when you consider what happens to the shares of those companies immediately following the bottom of a bear market.

Catching the Rebound

This is our 15th bear market since the end of World War 2.  Here’s what happened following the bottom of the bear markets:

Click the graphs to enlarge

  • The average price increase 1 month after the bottom was almost 31%.
  • When we look 6 months out from the bottom, the average price gain was nearly 26%.
  • 12 months after the low point, the average price increase was 39%.
  • And 2 years after a bear market bottom, the average price increase was nearly 60%.  

And remember, this is only price increases.  It doesn’t factor in the additional returns from dividends!

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It Happens Early...

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click to enlarge

This is interesting.  Prices one month from the bottom were higher than they were 6 months later in every single recovery.  A major portion of the recovery happens very early.  Missing out on that could have a significant impact on your future.

These gains may not have erased all the losses in any of those bear markets. But the surge immediately following the bottom helped those who stayed invested–even if their accounts fell further—recover a lot faster than if they moved to “safer havens.” And this is the best reason to not sell your stocks now.

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Bear Market Guide financial advisor

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.  This is now his 5th bear market.  Unfortunately, it won’t be his last.

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Should I Rebalance My Accounts?

Should I Rebalance My Accounts?

With the stock market down over 30%, should I rebalance my accounts? This was a question I received recently. We’ll explain what rebalancing is and why it’s a good idea. (Read more below)

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David sent me an email, and he asked, “With the stock market down over 30%, should I rebalance my account?” This is a great topic and a central part of many investment strategies.

What Is Rebalancing?

First, let’s talk about what “rebalancing” is. Many people believe you should diversify your account. You put a portion in stocks, some in bonds, and some in cash. This is your asset allocation.

As things happen in the world around us, that mix changes. Stocks will typically grow at a faster pace than bonds, even though it doesn’t seem like that right now. If you don’t make changes from time-to-time, you will find you have a bigger percentage of your mix in stocks.

Should I Rebalance my Account
click to enlarge

Rebalancing is a non-emotional choice—and that’s important—to sell investments that have done well. Then you buy other types of investments. It is rooted in one of the most basic investing concepts: buy low, sell high.

In Case You Missed it.

Last week we shared the 3 Things to Know About Bear Markets.  Click on the button to watch.

You can rebalance to reduce risk

Most people talk about rebalancing as something to do after good times. It’s a way to reduce the risk in your account. If the percentage invested in stocks gets too high, the risk from a bear market increases. Rebalancing sells those stock positions—at higher prices—and puts the proceeds in things with less risk.

Rebalance My Account Bear Market Impact
click to enlarge

Rebalance after big drops, too!

But it also works on the other side. Now that stock prices have dropped over 30%, your allocation has also changed. You have less invested in stocks than you did before this all happened. So if you rebalance now, you’re doing what? Selling other investments to buy stocks at lower prices.

Bear Market Should I Rebalance My Account
click to enlarge

Talk to a CFP® Pro

Bear markets are tough on all of us.  You can talk to a Certified Financial Planner to discuss your situation.  

The decision to rebalance is about math

This is a “non-emotional choice.” It should have nothing to do with what is going on in the world around us. The decision is based strictly on the numbers.

Should i Rebalance My Account Emotional Bear Markets
click to enlarge
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click to enlarge

Here’s what I mean. Your target mix is to have 50% in stocks and 50% in bonds. But after a few good years, the stock part is now 57%, and bonds are 43%. You sell the 7% and put it in bonds, to rebalance the account.

Should I Rebalance - Rebalance in good times
click to enlarge

The same thing applies now, except maybe it’s the other way around. You have 57% in bonds. So you move that 7% back to stocks because the numbers say so.  And when the stock market recovers, you’ll have more working for you.

blank
click to enlarge

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Should you rebalance your accounts?

In general terms, it is a really good idea. And if the market falls even further. Do it again. Doing so could help your accounts potentially recover faster.

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click to enlarge

(Please note, any investment decisions need to consider all relevant factors in your life. Any rates of return shown are for illustrative purposes only.  They do not represent an actual investment.  This also is not a prediction of future events. If you aren’t sure, please consult a financial planner you know and trust)

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  This is now the 5th bear market he has experienced. Unfortunately, it probably won’t be his last.  

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You Should Expect A Stock Market Correction in 2020

You Should Expect a Stock Market Correction in 2020

Since late 2018, the stock market has raced higher. Along the way, it has hardly missed a beat. This year looks to be a very interesting year. But we should all be prepared for a reset of sorts. Today on Monday Morning Money, we’ll tell you why you should expect a stock market correction in 2020.

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Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
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A Quick Note:  This episode was recorded early last week.  We had no idea that the stock market would drop as rapidly as it did.  We officially entered correction territory last thursday. 

A Normal Part Of Investing

Why should you expect a stock market correction in 2020?  We have no real knowledge of impending doom or anything like that. Sure, we are dealing with the Coronavirus, and last week we saw the Stock Market react harshly to the ongoing news.  In addition, we are also dealing with a lot of political stuff.

In the past 40 years, there has been an annual price decrease of at least 7% a total of 33 times.

The textbooks define an official correction as a 10% decrease in stock prices. That has happened in 21 of the past 40 years—more than half of the time.

The average calendar year price drop since 1980 is 14%. And the stock market has had calendar year declines of that much—or more—15 times.

You Should Expect A STock Market Correction
Click to Enlarge

A Stock Market Correction Doesn't Mean A Bad Year

Of the past 40 calendar years, with all of those annual adjustments, how many times was the stock negative for the year? Seven.

Since 1980, the stock market posted a negative year seven times. That’s about 1 out of every five years. The average total return for stocks over that same time frame was 11.8% per year.

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Expect Stock Market Correction

When You Expect A Stock Market Correction, You Can Make Better Decisions

These interruptions are normal. They are the rule, not the exception. The “reasons” why rarely matter, but how you react to the downturn does.

When we expect a correction, it makes us better investors. We can prepare ourselves for the possible downturn. And that can help us focus on making good decisions in what can be a stressful moment.

Tell yourself, “It’s gonna happen.” When it does, be disciplined and follow your plans. And that will help you avoid the mistakes that could cost you far more in the long run.

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What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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