Before I get to the topic at hand, how many of you correctly answered the question posed to you in 2015: “What do you think you will be doing five years from now?”
New definition from Webster: Coronacoaster noun: the ups and downs of a pandemic. Source: urbandictionary.com. One day you’re loving your bubble, doing workouts, baking banana bread, and going for long walks and the next you’re crying, drinking gin for breakfast, and missing people you don’t even like.
OK, so why is 2020 normal?
The stock market started the year up after a really good year in 2019 when the S&P 500 was up 30%. (1) The with COVID-19 reaching the shores of the U.S., states locking down, millions of people unemployed and the threat of more bad economic news, the S&P 500 dropped about 34% from high in February to the low March 23. (2)
Then despite a contentious election, racial protests which led to riots in many cities around the world, small and large business closings, continued unemployment, and threats of mass evictions, the stock market began a spectacular recovery and the day before the presidential election was slightly ahead of the values at the end of 2019.
Now with two vaccines being distributed, reports of new strains of the virus, and a band-aide relief package for the unemployed, markets are again approaching all-time high levels. If the year ends today, December 28, the S&P 500 is up 15.6% for the year 2020 and up 58% from the low point on March 23, 2020. (2)
So now you get to ask. How in the world is that NORMAL???
The year was nuts, insane. Markets were spectacular in 2019. Down about 30% in twenty-three trading days with news of a pandemic, thousands dying and millions infected. Economic slowdown, unemployment, evictions, people waiting in line for hours for food handouts like I have not seen in my lifetime. 2020 was NOT a normal year!
Yes, 2020 was unusual in many ways. However, the stock market was not all that unusual. Because, this is what markets do. They go up and down. Often the movements are sudden, steep and unpredictable. However, they consistently make movements like they did this year – although maybe not quite so extreme.
Over the past thirty-seven years, the S&P 500 has dropped below the value it started the year at on each and every year. So, during the time frame reported, the market dropped every year at some point during the year. (3)—page 14
By the close of every year studied, the S&P 500 finished the year higher than the year’s low-point. During the time frame studied, the market always finished above the low-point for the year. (3) – page 14
From 1984 through 2020, the S&P 500 finished the year with a loss six times. This means the S&P 500 was up in thirty-one of the thirty-seven years studied. ( 3 ) – page 14. Some years you make money while in other’s you lose. However, the winners out-number the losers by a wide margin in the years studied.
Remember, the S&P 500 is a market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S. Investors cannot directly invest in an index. Past performance is not a guarantee nor an indication of future performance.
By the way, if you are concerned, paranoid, or fearful, that just because markets are trading at or near all-time highs, please open the link to footnote 3 and go to page 16 with the title: “New Highs, Over Time, Have Been the Norm, Rather than Something to Be Feared.” The chart illustrates that since the start of the S&P 500 in 1957, the index has reached a new high 1,084 times.
One of my mentors, Nick Murray, has a mantra: “Gains in the market are permanent while losses are temporary.” For compliance purposes, I must say again, the past performance in not an indication or guarantee of future results. Study page 16. (3)
Remember, the markets as well as the indexes are made up of companies. Companies that are in business to make a profit by providing a product or service of value. The incentive is to increase the value of the product in the eyes of the consumer in order to sell more. This in turn increases the value of the company. Don’t be afraid of high point or low points. As footnote 3 illustrates, the economy and markets ebb and flow. There are periods of growth and periods of decline which in turn are followed by more growth.
What is your financial plan? When will you need money from your account? “A Goal without a plan is merely a wish.” --- Antoine de Saint-Exupery. Call me if you want to talk about your financial plan or investments. Footnote #3 is a good read, you may want to open and read it in it's entirety.
A couple of closing comments on 2020 that I am borrowing from others:
- “I’m getting tired of being part of a major historical event.”
- “At what point can we just start using 2020 as profanity? As in: “That’s a load of 2020.” or “What in the 2020.” or “abso-2020-lutely.”
Specifically pages 14 and 16
- Recipe to start off the New Year… https://www.halfbakedharvest.com/cowboy-party-cookies/
- Wonder Woman 1984…Sequel to Wonder Woman… HBO MAX
- Dash & Lily ……Delightful Rom-com adventure with plenty of holiday cheer… Netflix
A goal without a plan is just a wish.” -- Antoine de Saint-Exupery
Fred Wollman, CFP®, MPAS®, AIF®
144 South Grape St
Escondido, CA 92025
Phone 760.737.2246; 800.354.4568
Fax 760.745.1239 firstname.lastname@example.org
Investment Advisor Representative and Registered Representative of, and Securities and Investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC)
The views and opinions expressed are those of the author, and the information should not be construed as individual investment advice, or as the opinion(s) of Voya Financial Advisors. CN1462203_0122