Take a look at the May market recap from Joe Gallemore, CIMA® Partner & Director of Investment Management for Argent Bridge Advisors. Watch the video now!
Joe’s Notes:
Markets were mixed in April
- SP500, EAFE, and US Agg were positive
- Riskier asset classes (mid, small, EM) were negative.
- Continued uncertainty in the banking sector led to a risk-off tone among retail investors; there were significant flows out of banks and into mmkt funds.
- The message from the Federal Reserve also kept a lid on things. They bolstered their intended policy of hiking rates until they see meaningful reversal in inflation and wage growth. This reversal has begun in earnest, but the economy is proving very resilient, which means the data the Fed is monitoring remains too good for them to stop raising lending rates.
Debt Ceiling comments
- This is not unprecedented and debates close to the limits have happened many times. The US has never defaulted on its debt and consensus is that there is not even a remote chance of that happening. Consensus is also that the probability of not extending the debt limit by the deadline is extremely low.
- Addressing the Improbable – Scenarios for a standoff
Expect bond volatility between now and then, no matter what. Especially if we get closer to the deadline.
If a standoff results in a downgrade, you will see some bond volatility and a price shock, but should settle down soon. Happened in 2013.
If a technical default happens, will be the same, but the price shock may be a bit more.
- Some of the danger amounts to Headline Risk – investors worry and just-in-case actions add to the volatility they’re worried about.
- It’s an issue within these persons’ control. It’s a self-imposed limit that can be raised or even removed. It is not inflation or profits or some other invisible market force that needs to react by itself. It’s a known issue with a very clear mechanism to fix it.
- Congress knows the damage a default will do and we should all believe they’re simply not willing to let that happen.
What we’re doing to manage this uncertain time
- We’re setting aside needed cash in case volatility continues this year.
- Using CDs, Treasuries, and MMKT funds as short term savings vehicles because they are providing
- very nice income with minimal risk.
- Have and continue to use dollar-cost averaging over the past year to put long term cash to work.
- Our Investment Committee is meeting frequently to monitor accounts & portfolio models to see if we can rebalance into opportunity.
- We’ve adjusted stock exposures to lean into areas of equity that may weather a recession better.
- Advisors are paying close attention to debt management with increased borrowing costs.
- Taking input and guidance from myriad sources to focus on the data that matters and manage beyond short term market movements.
- We’re not overhauling portfolios because a debt ceiling showdown (which has happened many times before) is looming or because the chance of a recession (a natural part of the economic cycle) is rising.
Why staying invested is important?
If you invested $100,000 in the SP 500 index 25 years ago, before fees, it would be worth approximately $309,700 as of March 15. If you missed ONLY the 5 best trading days, that same investment would be worth approximately $195,700. You’d miss out on 1/3 of the return! And remember, the big up and down days tend to get bunched together in clusters.
Joe Gallemore, CIMA®, Partner
