Market News – September 23, 2019 - Compass Ion Advisors

“CASH UNTIL THE CRASH”: This is the phrase I use to describe a growing group of people I have been noticing. Believing stock prices are too high, they are putting a lot of money in cash. When the crash happens, they will “get back into the market”. I have seen this being deployed by people for at least the last five years as the markets have continued to climb. Is it a good strategy? I’m always happy to talk with individuals about this as I believe the answer is not susceptible to a one paragraph answer. But, I will point you to a research report that looked into this and concluded the following:

From 1926 to 2016 the U.S. stock market averaged 6.3% returns over cash.
Investors who were disciplined enough to stay in cash until a correction happened, then put it all in the market for five years generated returns that were about half of what they would have enjoyed had they just held stocks throughout the whole period.

Every investing situation is as distinct as the individual who owns the assets, and so there is no one right answer. However, although it might seem intuitive that keeping money in cash until the crash is prudent, it might not be the wisest policy. See also here.

THE FED LOWERS RATES: The Fed is not unanimous. This past week, the Federal Reserve Bank held its September meetings. Two Fed officials wanted to keep rates unchanged. One wanted a reduction of one half of one percent. The other seven voted in favor of a 0.25% rate cut, and that is what we got.

STOCKS END THREE WEEK WINNING STREAK: The S&P 500 and other major U.S. stock indices ended their weekly winning streak at three with a modest loss this week. The two main market movers were U.S/China trading relations and the U.S. Federal Reserve. The Federal Reserve did what almost everyone expected last week by lowering a key interest rate by 0.25%. U.S./China trade relations took a turn for the worse when the China delegation in the U.S. returned home earlier than expected. A third factor this week was the oil disruption in Saudi Arabia caused by the drone attack, and the heightened tension in the region.

18TH OUT OF 44: The Global Retirement Index is maintained by Natixis Investment Managers. It incorporates 18 performance indicators grouped into four themes:

The material means to live comfortably in retirement
Access to quality financial services to help preserve savings value and maximize income
Assess to quality health services
A clean and safe environment.

The U.S. came in at 18th in 2019, dropping from 16th place last year.

U.S. SAVINGS RATES: From the 1980s to 2007, household savings rates followed a predictable pattern. The savings rate rose after recessions, then declined as the economic recovery grew and as people grew more optimistic. This pattern has not held during this recovery. The personal savings rate (the portion of after-tax income that consumers don’t spend) rose from 3.7% in 2007 to 6.5% in 2010. Since then, rather than falling, the savings rate has drifted up. For the first seven months of 2019, the rate has increased to 8.2%. Why is this the case? Part is attributable to the income tax cut that went into effect January 2018. The savings rate jumped a full percentage point that month and held. Another factor is the greater caution caused by the emotional scars of the 2007-09 recession.

REFERENCES:

“CASH UNTIL THE CRASH”: https://greenspringadvisors.com/blog-article/sitting-cash-wait-next-market-crash-invest/; https://svrn.co/blog/2017/5/14/waiting-for-the-market-to-crash-is-a-terrible-strategy
THE FED LOWERS RATES: https://horsesmouth.com/getting-clients-comfortable-with-the-ebb-and-flow-of-economic-tides
18TH OUT OF 44: https://www.fa-mag.com/news/the-u-s–loses-ground-in-global-retirement-index-51743.html?section=43&utm_source=FA+Subscribers&utm_campaign=a41cfc5cb8-FAN_AM_Send_092019&utm_medium=email&utm_term=0_6bebc79291-a41cfc5cb8-236457125; https://www.im.natixis.com/us/research/2019-global-retirement-index
U.S. SAVINGS RATES: https://www.wsj.com/articles/americans-are-saving-more-and-that-isnt-necessarily-good-11569153600