What, Me Worry? - Carol Clark Schleif

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Throughout much of the record breaking post Great Financial Crisis (GFC) market rally, the stock market seemed to climb a never ending “Wall of Worry” as investors fretted about a wide variety of things — many of which never came to be. This line of anxiety, seemingly fed by headlines in the popular media as well as social media amplification, often ignored constructive tailwinds that kept both markets and the economy chugging along at a steady upward pace as shown in the chart below.

Concerns included geopolitics (e.g., North Korea, China, Syria, Iran, Hong Kong); Brexit; election cycles; trade; tariffs; slower growth rates than hoped for from many regions around the globe; low or negative interest rates coupled with growing sovereign deficits; climate change; high unemployment for much of the period; and in recent years, the extended length of the rally/economic rebound itself. Despite all the fretting, U.S. stock markets hit record highs in late February with the Dow Jones Industrial Average closing at 29,568.47 on February 12, 2020 and the S&P registering 3393.52 a week later February 19, 2020.

Interestingly, funds flows were persistently OUT of equity mutual funds and ETFs through much of the period, but particularly since 2015 as illustrated in (refer to Table 1: Net flows of mutual funds (MFs) and exchange-traded funds (ETFs) on page 8) below. Despite the much reported Fear of Missing Out (FOMO), investors were voting with their dollars by pulling money out of stocks and putting it largely into fixed income. All illustrating in pointed detail this anxiety over the viability of equity investment.

By late in the first quarter, with the dawning realization of the seriousness of the COVID-19 issue — which the World Health Organization formally labeled a global pandemic on March 11th — markets reversed course in record breaking time plunging nearly 34% over the next five weeks. To some, it was almost as if the fretting of the prior decade had finally borne fruit. Yet almost more unbelievable than the rapidity and severity of the pullback was the speed and velocity of what came next — a retracement that carried most domestic averages back up 44% or more — in some cases toward or even above recent highs. This rebound is anything but reassuring to those that fretted all the way up the last time, producing a psychological conundrum of what to do next — buy, hold, or sell?!

Carol Clark Schleif - Strategic thinker connected to the next generation.

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