Updated: Oct 4, 2020
There is nothing normal about the nature of this investing cycle. So far this year we have seen a health crisis prompt an economic crisis because of the shutdown and shelter in place orders. First markets dropped dramatically only to rebound almost as quickly. And since the virus remains a threat, it’s difficult to know what to expect moving forward.
It’s reasonable to expect market volatility to continue. The remainder of this year may be shaped more like rolling Ws rather than a clean V especially if demand is weaker than usual or supply becomes constrained. And over the longer term, the U.S. economy may shift from consumer-led growth toward investment-led growth. Up to this point much of our economy is driven by consumer spending. But trends could change more toward health care, technology and supply chain manufacturing.
The Federal Reserve and Congress provided massive relief by directing funds to households and loans to businesses. Despite all this, the outlook still suggests the economy will take some time to recover. We expect short-term interest rates will stay near zero for the next couple years or longer.
Stay disciplined. It’s often said investing is, by nature, an act of optimism. Ultimately we will emerge from this crisis and find the path forward. That said, be aware of the emotions of fear and greed and don’t let them drive your decisions, especially around diversification and rebalancing. Investing is a process that occurs over the course of time.
Be ready for changes in the market. If markets shift away from services and consumer-led growth, it could catch some investors by surprise. Maybe it would be a good idea to evaluate the balance of your portfolio.
Be careful about reaching for yield. For higher yields, fixed income investors will need to take some risk. The question is how much do you want to risk? Limiting duration reduces the risk of long-term rates and investing in bonds with higher-than-average credit ratings can also limit risk.
Please contact Brixton Capital Wealth Advisors with questions about any of this. We are always available for you.