Taking Control of What Lies Ahead

Friday, May 8th, 2020

By: Jim Callahan, CFA®, CFP®

After the onslaught of this pandemic and ensuing shutdown, we knew the economic data would get ugly.  But the last month has been worse than expected.  Stocks have soared off their lows, but does that mean we’re all clear?  What lies ahead?

But you’re not as powerless as this roller coaster appears, and there are financial strategies you can consider today given the environment we’re in.  So, let others try to predict how the short-term plays out while you set yourself up for success regardless of whether our economy sees the V-shaped, U-shaped, or L-shaped path ahead.

Negative Surprises

By many accounts, this is the worst environment we’ve seen ever, including The Great Depression.  And whether its personal consumption, unemployment claims, or corporate profits, we’re seeing more negative surprises (the blue line below) with each release.

But here’s the catch: as these negative surprises have rolled out, stocks have rallied 30% from their March lows.  How can this be?!


Will We Re-Test The Low?

One argument labels recent market gains as nothing more than a bear market rally.  It’s a head fake that will disappoint as stocks eventually re-test their March lows.  History suggests this is typical bear market behavior, so there’s evidence for this argument.

Another possibility is that this recession is unlike any other, so why wouldn’t the stock market behavior follow suit?  This recession wasn’t due to the bursting of a bubble, but rather a self-induced demand shock akin to a natural disaster.  We’re already re-opening the economy, and economic growth could return in force given the money the government has pumped into the markets.

Preparing Not Predicting

The simple truth is that no one knows for certain how this story will end.  But the key to protecting and growing your wealth has less to do with predictions and more to do with preparedness.

Beyond your portfolio, this environment offers opportunities for some specific financial strategies to consider.  For example, the plunge in interest rates opens the door to certain strategies, while the potential for upside in asset values over time leads to other strategies to pursue.

Understanding that your wealth extends beyond your investments not only uncovers risks that can be mitigated but introduces options that can enhance wealth when the recovery ensues.

Taking Control of What Lies Ahead

So, which scenario will play out in the near term?  That’s anyone’s guess, but rest assured with these important takeaways:

  1. No one knows how this will play out, so spend your time preparing for several possible outcomes rather than trying to predict which outcome will prevail
  2. You are in more control than you realize, as there are financial moves you can consider given the current environment

For more on taking control, check out our recent webinar: “What Lies Ahead”