Market climb stalls, recency bias - will it last forever?
Last week we discussed the relentless climb higher for the major indexes, along with the need for American confidence in the way the country is responding to Covid19 and the economy, continuing racial tension, and the Fed’s latest approach regarding inflation and inflation rates.
Markets
The relentless climb higher for stock market averages has taken a big pause starting last Thursday and continuing Tuesday. New highs were established before this recent decline with the Nasdaq taking a notable decline of over 10% from its high as we are writing now (9/8/20).
Attention is being focused on sectors of the market that did not experience the outsized gains from the March lows. The broadest sector of the market gaining attention are value stocks that did not experience the gains of the growth sector, even more focused on 5 stocks-Facebook, Amazon, Microsoft, Google, and Apple. All have all retreated significantly from their highs. Does that mean they are now values to purchase? As far as historic value measures they are far from bargains let alone values. Uncertainty and anxiety rule the markets causing interest rates to fall from already historic lows.
Behavioral Finance
All this anxiety and uncertainty in the markets and current events is that during times like these we can experience from low to moderate and all the way up to extreme anxiety and uncertainty in all aspects of life. Behavioral economics research confirms that whichever feelings we are experiencing currently, right now, we feel as though those specific feelings will last forever. During good times, it feels as though good times will last forever, and during bad times, it feels as though bad times will last forever. It is very hard to step away from this common human bias, and even harder to ensure recency bias is not negatively impacting your decision making, financial or otherwise. Having a plan backed by research can help.
Housing
If you own a home in the suburbs the value of your home has probably increased. The mortgage market has experienced its best quarter in years with homeowners taking advantage of low interest rates. The bulk of the activity is refinancing and not new purchases. 30 year mortgage rates dropped below 3% briefly in July helping to push refinancing to breakneck speed. See if refinancing makes sense for you. Or consolidating debt where refinancing can restructure auto, credit card or student loan debt. Reach out to your SAS Advisor to learn more.
Here is a link on consolidation options:
Current Events
New positive Covid-19 tests averages are lower the past few days, as are average Covid-19 deaths. However, positivity rates in many states are increasing. Every day, as colleges reopen, we hear stories of super spreading events and quarantining.
We just finished the Labor day weekend and spreading tends to take a couple of weeks so if the holiday impact is similar to Memorial day and July 4th we could be looking at a tick higher in the next couple of weeks. A popular model from the University of Washington predicts over 400,000 deaths by the end of the year. Reopening is happening regardless of the Public Health emergency. The jury is out on how we manage reopening. Most public schools are sticking with virtual education versus in person on a district by district basis. America is all over the map with no overall nationwide plan or planning.
California wildfires are at an all time high. Many of us woke to an other-wordly orange hue hanging over us Wednesday morning following a major heat spell over the Labor Day weekend. Crazy times indeed.
Election
With Labor Day in the rear view, the Presidential campaign is now officially in full swing. Expect ugliness with the big issue being voting including a focus on the nationwide handling of Covid-19. Make sure you vote. In person may be better than mail but here in CA it is easy to vote by mail and by absentee.
