For this week’s podcast, I called up financial planner and author Allan Roth to ask one simple question: “What the hell is going on with the stock market?”
I’ve long believed that it is folly to forecast the market’s direction, and this podcast serves as a nice reminder of why I’m right about that! When I first invited Allan to talk about the market earlier this week, the backdrop was the gravity-defying rally of the last couple months. The day after we talked, the S&P 500 racked up its worst day since March, falling nearly 6 percent. I’m writing this on Friday morning; how will the market do today? I haven’t got a clue.
The rally since March made no sense to me in the first place. Jeff Sommer summarized this sentiment nicely in a column for The New York Times last weekend:
Towns and cities across the United States have been convulsed in protest against police killings of black people. The president has declared that he is prepared to deploy the United States military to “dominate” the streets — while his secretary of defense says he opposes using military force against American civilians.
Teetering on a constitutional precipice, the country faces catastrophic unemployment, grave trade tensions and a deep recession. And no one needs reminding that the world has been stricken by a coronavirus pandemic that has already killed more than 380,000 people, more than 106,000 of them in the United States.
You may want to place these items in a different order, add some or subtract others. But it would seem that at least we can all agree that we are looking at an ugly picture.
Yet there is a glaring exception to all this gloom: the stock market. It has been absolutely fabulous! In fact, by some measures, the American market has never been better.
On Thursday, the stock market seemed to be facing reality after a fresh Federal Reserve projection that the economy faces a long, multi-year slog back to health, and that much uncertainty remains. But we might recover from the drop quickly. Or not.
Allan Roth joined me for a podcast back in March to talk about how average retirement investors should think about market volatility. He was back on my radar screen this week following an excellent column for Adviser Perspectives titled The Question Every Advisor Must Answer. This piece runs through the panicky questions and assertions many financial planners are fielding from clients these days:
- An economic depression is possible, if not likely.
- There will be at least a 50% market decline.
- The chance of a rally, much less getting anything close to historical stock returns, is near zero.
- A state-issued general obligation (GO) muni bond held to maturity is safe – no defaults since 1932 – and yields 5% on a taxable equivalent basis.
- Take everything out of stocks for at least six months or until after a big correction.
In our conversation, Allan and I considered those questions and more. Click here to listen to the podcast.