Wealth Management Blog

Posts tagged Market Volatility

Mr. or Mrs. President?

By JJ Burns

November 4, 2016

Everyone is afraid of something.  It’s true.  The visceral reaction to threats, real and imagined, has driven human behavior for millions of years.  As time has passed, our species has evolved from fearing simple threats from predators and harsh climates to fearing more sophisticated threats.  We have mostly conquered our ‘lizard brain.’  The lizard brain (so called because it is believed that reptiles survive almost solely on its impulses) is the amygdala, which controls emotions such as fear, our survival instincts, and memory.  Controlling fear is how our ancestors emerged from the cave and conquered predators and darkness.  Now, millennia later, what are we most afraid of?  According to Chapman University’s 2016 ‘Survey of American Fears,’ Americans are most afraid of government corruption than any other of the additional 79 topics in the survey.  That’s right: we are more afraid of our own government than we are of death, disease, loneliness, war, climate change, going bankrupt, snakes and public speaking.  This year, it appears, we are also afraid of our future.

Some of our recent discussions with clients have surfaced their biggest fear: the outcome of our national elections on November 8.  As we might expect, investors are worried about the future because of heightened dislike for many of the candidates and an uncertain future for the economy, the markets, and their portfolios.  Their collective lizard brain says sell stocks and hide, much like our primitive ancestors, and emerge when the perceived threat has passed.  As we often say, we understand this reaction.  We know that the markets, like people, hate uncertainty.  We also know that managing our emotions – especially conquering fear – in trying times is the key to success in any endeavor.  So it is today.

Remember that the market has weathered many crises since 1900: two world wars, the Roaring ‘20s, the Great Depression, the first big market crash in 1929, oil shocks, wars in Korea, Vietnam and the Middle East, the 1987 flash crash, the Tech Bubble, high inflation, low inflation, terrorist attacks on U.S. soil, the Financial Crisis, a government debt downgrade, landing a man on the moon, the Ebola and Zika scares, ISIS, the beginnings of climate change, banking crises, the rise of the internet, the rise—and fall—of communism, and so on.  Through all these events, capitalism has survived and adapted and moved forward.  We believe it will again regardless of Tuesday’s election results.

Here’s our brief summary of the main issues to consider when thinking about the election and the post-election markets:

  • The U.S. economy is chugging along in a low-growth/low-inflation environment.  A recession is not on the IMMEDIATE horizon, interest-rate hikes are expected to be modest and drawn out, and the job and housing markets are stable.  Preliminary Q3 GDP came in at +2.9%.  As we write this, October’s payrolls number was good and included prior-month positive revisions, unemployment dropped to 4.9% and wages showed their highest year-over-year increase since 2009 (ending at +2.8%).  Even market news is good: S&P 500 earnings results thus far for the third quarter of 2016 are showing improvement over the past six quarters.  These data show expected improvement for the current quarter and into 2017.

  • The Fed is expected to use the calm after the election storm to raise short-term rates by 0.25% in December, with two additional +0.25% hikes expected next year.
  • The markets, and a narrow majority of the electorate, appear to favor the Democrat candidate.  Mrs. Clinton has proffered a platform of change, but nothing that we see as too radical.  We expect that, should she win and the U.S. Senate change control, that modest incremental legislation will be enacted to (among other things) change the tax code, work on regulatory and immigration reform and review U.S. trade pacts.  The markets have, and should continue to, respond modestly.
  • Many of our clients have stocks and bonds in their portfolios.  The stocks are expected to provide long-term growth to keep ahead of inflation; the bonds provide income and act as ballast when markets are especially volatile and investors seek safety.  Adjusting this mix by using rebalancing opportunities is our best tool to keep our strategic focus and avoid costly tactical mistakes.  This is what we do.

Investors need to battle their lizard brains and keep their focus on the future, not the short term.  The initial fear trade is to sell and go to cash; a tried and true short-term palliative, selling stocks and sitting in cash is good for short-term peace of mind but not a long-term planning strategy.  Our clients know that we believe in globally diversified portfolios, that we focus on the long-term, and consider strategy over tactics to ensure that portfolios are built to stand the weather of time rather than simply avoid today’s storm.

As always, we appreciate your confidence and would be happy to discuss any of the issues raised here or answer any questions you may have.

Brexit: What It Means For You

By JJ Burns

June 24, 2016

In an expectedly close but surprising vote, the U.K. has completed a referendum to endorse a withdrawal from the European Union (EU). Today’s market reactions are the usual result from market uncertainty around economic issues—sell-offs in “risk assets" such as stocks and currencies and a flight to quality in “safe-haven” currencies and bonds (e.g. the U.S. dollar and Treasuries). Early analysis of the results indicates, however, that the LONG-term results may not be as severe as feared.

HERE’S WHAT HAPPENED

U.K. and Commonwealth voters, by a slim margin, voted to leave the EU. Prime Minister David Cameron immediately resigned, and a new government will be installed in the fall.

WHAT HAPPENED IN TODAY’S MARKETS?

  • Stocks and other assets such as currencies, have sold off around the globe. The U.K. and other EU countries have been hard hit, while the U.S. decline has been muted. Leading up to this, the global markets were rebounding over the last couple weeks.
  • The U.S. dollar and Japanese yen have strengthened; the Euro has declined a bit, and the sterling has substantially declined against the dollar.
  • There has been a flight to quality in bonds, particularly U.S. Treasury Bonds.
  • Gold has been priced up, while oil has declined.

WHY WERE MARKETS VOLATILE?

  • Many believed that Britain would remain in the EU and short-term traders made heavy bets in currencies and other “risk assets.” In fact, markets rallied into the vote as the DJIA was up over 250 points yesterday. Interest rates were moving higher.
  • The markets were surprised once the votes were tallied and markets reversed their trend, giving back most of these gains. The behavior was violent as Britain leaving the EU is a significant event. 
  • The U.S. markets declined as the thought process that European companies are trading partners of the U.S. This could be negative for some businesses.

WHAT ARE THE LONGER-TERM EFFECTS?

  • Britain represents 4%-5% of global GDP. Net results may not be that significant. 
  • The U.K. will need to implement policies to provide liquidity and ease interest rates. 
  • The sterling will fall, U.K. inflation will increase due to increased import prices, and U.K. GDP will likely decline in the near-term. A recession is possible in Britain.
  • The U.S. will be relatively insulated. The Fed will likely delay interest-rate hikes.
  • Global growth may be affected to some degree. This event is not a ‘Lehman moment’ that accelerated the global Financial Crisis. As one pundit noted, “…markets adapt. Policymakers adjust.  Businesses will change course while they continue to seek profits. Prices will reset. Opportunities will emerge.”

WHAT SHOULD BE DONE IN MY PORTFOLIO?

  • Our principles of portfolio construction are based on each of our client's unique personal goals. Their plan is well thought out and balanced by diversified asset allocation. 
  • Changing your portfolio based on a reaction to market events rarely leads to productive long-term results. 
  • All of our plans are built upon the certainty that we will go through negative events and market fluctuations.
  • All of our portfolios contain an anchor of high quality bonds and bond funds, which help to limit declines in significant market events, and did so during the Brexit vote today. Our bonds are doing exactly what we want in uncertain times. 
  • We expect short-term stock volatility and will be partially offset by bond and commodities gains. Today’s market moves are short-term reactions, and most currency and bond markets have moved in orderly fashion (i.e. no extreme drops). And, as our pundit notes, “The long-term political, economic and financial repercussions of the ‘Leave’ vote are incalculable at this point.” 
  • While the Brexit vote has been surprising and unsettling, most of the effects will be felt in the U.K. and Europe. We don’t see any required portfolio moves at this point; most of the trading is just that—trading. Long-term investors should stay focused, and we’ll update you as events progress.

As always, if you have any questions or wish to speak to us directly please feel free to call us.

Exclusive Webinar: Q4 2015 Economic & Market Outlook

By JJ Burns

January 14, 2016

What lies ahead for the global economy in 2016?

As we enter the new year, the outlook for the global economy remains uncertain with a rise in interest rates and decelerating growth in China. How will key economic trends in 2016 affect your portfolio and business?

Join JJ Burns & Company on Thursday, January 21st​ at 1:00 pm EST for a free webinar to discuss the Q4 2015 Economic & Market Outlook. During this live presentation, CEO JJ Burns, Managing Director Anthony LaGiglia, and Chief Investment Officer Steven Mula will review our outlook for the coming year.

Bonus: All registrants will receive a link to the on-demand version of the webinar following its completion.

In this 30-minute webinar we'll talk about:

  • The 2015 markets and continuing U.S. recovery
  • Key economic trends to watch for in 2016
  • How investor behavior impacts long-term investment results

Plus we’ll also answer questions from attendees.

Don't miss this informative event! Reserve your spot today.

[Update: For those who couldn't attend, you can watch the webinar video here.]

Exclusive Webinar: Q3 2015 Economic & Market Outlook

By JJ Burns

September 29, 2015

What does the recent market correction say about where the economy is headed?

U.S. stocks experienced sharp sell-offs in the third quarter of 2015, stoked by global fears about China’s slowdown and falling commodity prices. How will this volatility impact your portfolio?

Join JJ Burns & Company on Wednesday, October 7th at 1:00 pm EST for a free webinar to discuss the Q3 2015 Economic & Market Outlook. During this live presentation, CEO JJ Burns, Managing Director Anthony LaGiglia, and Chief Investment Officer Steven Mula will review our outlook for today’s markets.

Bonus: All registrants will receive a link to the on-demand version of the webinar following its completion.

In this 30-minute webinar we'll talk about:

  • The recent market volatility and what might lie ahead
  • China’s slowdown and declining energy prices
  • When the Federal Reserve might raise interest rates

Plus we’ll also answer questions from attendees.

Don't miss this informative event! Reserve your spot today.

[Update: For those who couldn't attend, you can watch the webinar video here.]

JJ Burns on CBS New York

By JJ Burns

September 9, 2015

JJ Burns was interviewed by Richard Rose from WLNY in New York during the Labor Day weekend. JJ discussed the history of market corrections, including the current one, and how economic turbulence in China is causing volatility around the world. More importantly, JJ tells viewers how proper financial planning can help to navigate uncertain environments.

Watch the full interview here

Backstage with JJ

As I prepared backstage for the CBS interview, a few things really struck me:

  1. We live in a much more connected world—in the sense of technology and how events are related.
  2. The old adage about the butterfly effect came to mind—a butterfly in the southern hemisphere flaps its wings and triggers a hurricane in the northern hemisphere. Lately, the butterfly effect is starting in China. Next week’s location? Who knows? Uncertainty can begin anywhere, anytime.
  3. Investors need portfolio diversification to better withstand uncertain environments. Unexpected problems that occur in one asset class, continent, region or country can affect many investments. Exposure to U.S. Treasuries and the S&P 500 isn’t enough diversification for a global dynamic.
  4. Investors need a plan—one that is structured on long-term thinking and preparation for rough patches. A good plan is the sum of the parts, and it equals a greater whole.

At JJ Burns & Company, we believe that proper financial planning can provide a calming experience during challenging times in the market. It’s comforting for an investor to know that their plan has been designed to withstand short-term market disruptions. We’re here to help you stay focused on reaching your big-picture destination.