Markets Swing on Fears and Facts

  • Consumers Spending Despite Handwringing Headlines 

  • Great Recession’s Post-Traumatic Syndrome

  • Portfolios Built to Weather Market Volatility

  • Getting Married—A Financial Planning To-Do List

  • Looking Ahead to Construction Spending, Payrolls and More

To all our clients, friends and family in Hurricane Dorian’s path, we are thinking of you and wishing you safety and security above all else.

In a late-summer week bereft of new news—unless you count more U.S.-China trade-war fears, yield-curve inversions, Brexit, the burning Amazon rainforests and Iran behaving badly—global markets managed to recover last week’s swoon.

Despite a tumultuous August, stocks and bonds have both produced positive returns in 2019. For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 14.9% and 18.2%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 9.0%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has fallen to 2.15% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 9.0% for the year.

Consumers Spending Despite Handwringing Headlines

We’ve said it before but it bears repeating: In a consumer-driven economy, U.S. consumers who are fully employed and spending count for a lot more than indicators of slowing manufacturing activity or temporary yield-curve inversions.

Just this week, new figures showed Americans may not be buying what the fearmongers are selling—the Conference Board said that consumer confidence was near a 19-year high in August. That said, sentiment is a tricky thing to nail down. The University of Michigan’s confidence measure showed that consumers may not be feeling as secure about the coming months as they have in the past. This is one reason why we put more stock in stats on savings, spending and incomes than surveys. Consumer spending in July (the most recent period we have a report on) was at its highest level since April. 

And while second-quarter economic growth was revised to the downside, the change was small, going from 2.1% to 2.0%—less than economists expected yet still firmly on the slow-growth-not-no-growth track we’ve been on all year.

Great Recession’s Post-Traumatic Syndrome

We’ve been fielding questions lately about recessions and their impact on investors’ portfolios. These questions aren’t surprising, as the last recession (the “Great Recession” from the end of 2007 through June 2009) overlapped with steep stock market declines. So, to many, the idea of “recession” is linked to big drops in portfolio values. But history paints a different picture.

Thanks to the Great Recession and the bear market that ensued, we think investors have become more sensitive to even minor economic hiccups or suggestions a slowdown is coming. That the Great Recession left lasting performance scars and traumatic memories is easy to fathom: From start to finish, the S&P 500 index declined 35.0% on a total return basis over the 18-month period.

It didn’t earn its nickname for nothing; that drop was unusually steep. And yes, if you were able to call the start and end of the recession in real time—and act with confidence—your portfolio would have benefitted from avoiding it entirely.

However, we think timing a recession is a fool’s errand and, frankly, impossible. Only after a recession is long over does the independent National Bureau of Economic Research (NBER) actually pronounce the beginning and end dates. And even if you could get the economic tops and bottoms exactly right, that knowledge would have had limited investment merit in the past.

Looking back to the two recessions prior to the Great Recession, the data shows that investors fared significantly better than you might expect.

The recession during the dot-com bust lasted just nine months—from the beginning of March 2001 through November 2001—during which time the S&P 500 declined 7.3% (including reinvested dividends). We saw an almost 7% decline in the S&P from its July-end high in the middle of this past month alone. It’s simply not something you can avoid. Think of it as a cost of doing the business of investing.

The experience in the nine-month-long 1990–1991 recession was markedly different. By the time it was declared over in March 1991, the S&P had gained 7.2%.

You can see in the chart below how an investment in the S&P 500 would have performed during each of the last three recessions.

Note: Chart shows the growth of a hypothetical $100 investment in the S&P 500 during the last three recessions (7/90–3/91; 3/01–11/01; 12/07–6/09) using daily total returns.  Sources: Morningstar, NBER.

Note: Chart shows the growth of a hypothetical $100 investment in the S&P 500 during the last three recessions (7/90–3/91; 3/01–11/01; 12/07–6/09) using daily total returns.

Sources: Morningstar, NBER.

You shouldn’t assume that recessions inherently mean losing money in the markets. A tactical approach and smart diversification can enable a portfolio to manage stormy conditions—without requiring investors to sit at anchor in a safe harbor.

Portfolios Built to Weather Market Volatility

Our tactical portfolios are designed to be attuned to market conditions and signal trades if they are taking a turn. For us, preparing for the best and worst of times isn’t a last-minute scramble any more than it’s a knee-jerk decision based on so-called expert opinions.

We’ve built our tactical investing strategies with downside protection in mind so that investors can stick with them through market upheaval. Our approach removes emotion from the equation and our individual portfolios seek to provide solutions for a wide range of investment objectives no matter what stage of the market cycle we’re in. 

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Getting Married—A Financial Planning To-Do List

Do we have to say it? Getting married is a big deal, and it comes with a big to-do list. Compared with the joy of sharing the news, the stress of planning a wedding and the adventure of dreaming up the honeymoon, more prosaic priorities—like figuring out how you’ll handle your finances together—can easily get neglected.

We believe the following five items are vital for couples to complete before tying the knot:

1. Discuss Your Relationship with Money. People’s upbringing and experiences can leave them with very different approaches to handling money. It’s important to understand how your relationship with money is similar to or different from your partner’s before merging your finances. Be sure to discuss your beliefs about saving, how closely to track spending, your approach to making big purchases and how you feel about taking on debt.

2. Explore Your Financial Goals. Once you feel you understand your partner’s financial beliefs, start to discuss your financial goals. Where do you and your partner see yourselves in the future? What are your short- and long-term financial goals? Make sure you are both on the same page so that each of you feels financially ready for what the future holds, whether that’s going back to school, starting a company or a family, or retiring early.

3. Develop a Budget. Creating a joint budget helps you understand and hopefully control where your money is being spent. Start by adding up combined monthly income and then subtract joint monthly expenses. Finally, decide how you will allocate your surplus toward your short-, medium- and long-term savings or investing goals.

4. Create or Update Your Estate Plan. Now that you’ve found a partner in life, you’ll want to make sure they’re cared for after you’re gone. You will need to update wills, health care documents and durable powers of attorney, as well as designate new beneficiaries on key financial accounts. For more on how to find an attorney, read our parent company Adviser Investments’ special report on the subject: 10 Essential Questions to Ask an Estate Planning Attorney.

5. Decide How Your Finances Will Merge. Some couples completely merge assets, some keep them separate and some strike a balance between the two (each contributing to a joint account from which bills are paid, for example). Whatever approach you take, open communication is key. Any of these arrangements can work; what’s important is that you both feel heard and understood.

This is by no means an exhaustive list, but it covers the essentials and provides a good starting point for couples young and old.

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Looking Ahead to Construction Spending, Payrolls and More

The trade-shortened week to come will nevertheless be host to a plethora of reports: Manufacturing and service sector indexes, construction spending and car sales, factory orders and jobless claims, as well as private sector and nonfarm payrolls jobs reports. Most of the figures will reflect August’s economic activity and should give some welcome insight into how the real economy has been faring during this period of headline-driven volatility in the markets. 

If you’d like to learn more about our tactical or fundamental investment strategies, please contact Steve Johnson at 844-587-7393 or All of us at Braver Capital wish you a safe and enjoyable Labor Day weekend!

Please note: This update was prepared on Friday, August 30, 2019, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. 

Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

© 2019 Braver Capital Management, an Adviser Investments, LLC company. All Rights Reserved.