We’ve officially surpassed the 1-Year Anniversary of this pandemic. I do not think any of us realized it would go on for this long, considering what we were told in the beginning. When we look back over the past year, I feel like in general it flew by because we did not really do much and everything seemed to blend together. But, while we were in it, the time seemed to crawl by day to day and week to week. Here we are with the end in sight and light at the end of the tunnel. We are all looking forward to getting back to some sort of normalcy, whatever that may look like for you.
The March Jobs report was much stronger than expected and suggests an even more powerful recovery than implied by the Fed’s recently upgraded projections. Non-farm payrolls rose 916,000 in March, well ahead of a consensus expectation of +658,000. With these job gains, the U.S. has now recovered 14.0 million, or 62%, of the 22.4 million jobs lost in the pandemic. The unemployment rate fell to 6.0% from 6.2%, in line with consensus expectations, and the labor force rose by 347,000 in March, showing a continued decline in pandemic effects on the labor market1.
The S&P 500 is off to another good start, +11.92% year-to-date (as of 4/16/2021). It is interesting to see what sectors or “style” investments (value vs. growth, large vs. small etc.) are outperforming vs. underperforming this year. In 2020, large growth investments were the best performing area of the market (returning an average of 34.8%). We know trees can’t grow to the sky and we believe it continues to make sense having a diversified portfolio, owning both large and small, value and growth-oriented companies because we are not sure when the tide will turn. So far, small value (and value stocks in general) investments are the best performing area of the market (+23.6% YTD). Comparatively, large growth is +8.6% year-to-date. Do you remember how hard oil companies were hit last year when the country essentially shut down and the demand for oil seemed nonexistent? Energy is the best performing sector this year +29.2% as of April 16th. This variability proves you cannot “market time.”
We had multiple conversations last year with clients who were nervous about the market’s future, whether it was due to COVID-19 or the election. Some were at the point of wanting to go to cash, and after careful consideration and a review of their financial plan, we avoided any clients cashing out. This may seem trivial, but history has shown if you miss just a handful of the best performance days in the market, it will cost you real money. No one has a crystal ball, yet often people act as though they do. The chart below shows that missing even the 10 best days in the market reduced returns by almost 40% in the last 25 years – S&P 500 Index: Annualized total returns and growth of $100,000 investment (3/31/1995–3/31/2020)
The chart above shows someone who invested $100,000 on 3/31/1995 and remained invested for the duration. They earned an annualized return of 8.97% or ended with $856,394. If you missed JUST the best 10 days, you earned an average of 5.62% or ended with $392,332. That is a difference of over 3% per year or $464,000!
Many of the best days occurs during the periods with the greatest volatility, fear, and uncertainty of the future:
The best days in the stock market tend to cluster and are easily missed. Six of the top 30 price return days since 1995 have happened during the COVID outbreak. 80% of the best days in the market over the past 25 years happened during the tech wreck, the financial crisis, and during the COVID outbreak2.
The pandemic has caused many, if not all, of us to go a bit crazy. We have too much time on our hands and money we can’t spend, and only interact with people virtually or on social media. So, I’ll just say to those out there making excuses for not being in the stock market, or sitting on the sidelines and saying “it’s a bubble”, we disagree. It’s the pandemic. And, as the vaccines start to fade the fear of this pandemic, and people get back to “normal”, watch out, as we will likely see demand that has been building inside of us for over a year come exploding out. Stay the course, friends.
If you would like to discuss your long-term financial plan in greater detail, please contact our office to schedule time with one of our Wealth Advisors. If you are not currently a client and value a second opinion, please contact our office at (888) 775-0950. Now is a better time than ever to look at your current investments and financial plan to make sure they are properly positioned for the unexpected.
Jerrod Ferguson & the Vance Wealth Investment Committee
Disclosures: The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Past performance does not guarantee future results.
The information provided is for educational and illustrative purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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- JP Morgan Economic Update, Dr. David Kelly, 4/19/2021
- Invesco – Compelling Wealth Management Conversations, Charts sourced by Bloomberg L.P