Your Financial Future: Paying the piper
Last week we discussed how the stock market indexes have come roaring back from March lows. This is seemingly a disconnect from economic reality. The indexes are too influenced from six or seven stocks that have taken over their performance numbers.
Between Feb. 19 and Aug. 18, only 38% of stocks in the index have posted gains while 62% have had losses. Like many headlines, you would not know what is really happening. Some sectors of the economy have done very well such as consumer staples, health care and information technology sectors. More than 50% of stocks in those areas are up. Other sectors such as energy and utility stocks are down in value.
Actually, 43 stocks in the S&P 500 saw gains of 25% or more from their March lows. However, 126 saw losses of 25% or more. Some companies such as Norwegian Cruise Lines are down 71%. AMC Theatres saw some jump in their price this week when they announced they would be opening more venues soon. While this is good, it will take them a long time to get back to pre-COVID-19 operating results. Capacity is being very limited, there are extra cleaning costs, many people will be hesitant to go in for some time, and they must make up all of the operating losses they have incurred the last seven months. Many companies have not been paying rent, delaying tax payments and must rehire staff. Hollywood has not been producing movies during the pandemic so there are not a lot of blockbusters just waiting for release. These facts are not limited to companies such as AMC but many in the economy.
It is important to remember that we were on an 11-year bull market when the pandemic struck. Price earnings ratios are higher than they have been historically. We were due for some kind of correction. The low interest rates are making the returns on CDs and bonds very low. Some of this is driving parts of the stock market higher. The FED is being very accommodating; however, some time we will have to pay the piper.
There are some good signs. We are in much better shape in the country than in March. Homes are selling. Some people have increased their savings. Yet others are struggling because of either job losses or bad financial habits. The politicians must balance science with economics. Fortunately, the emergency rooms are not being overrun which was the reason for the economic shutdown.
When things get more normal, it will take a lot of time for many things to make up losses and be in the same financial shape as before the pandemic. Anyone who has struggled financially in their personal lives knows it is often a rough road back to financial stability. The good news is the country, like people, can make it if we make good decisions and put in the work. We have many strong people who will get the job done. Just make smart financial decisions for your family and don鈥檛 get caught up in the headlines.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.